Minority Interest
. TAT
recognized a minority interest of $1.5 offset by its shares in results of affiliate
company prior to its consolidation of $0.7 million, for the year ended December 31, 2008.
TAT recognized a minority interest of $0.8 million for the year ended December 31, 2007.
Income taxes
. Total income tax
expense for the year ended December 31, 2008 amounted to $1.8 million, compared to $3.2
million for the year ended December 31, 2007. In 2008 the decrease is primarily
attributable to a $0.9 million decrease in Limcos income taxes from $2.8 million in
2007 to $1.9 million in 2008, due to decreased pretax income offset by additional tax owed
for tax positions taken in previous years and recognized as tax expense in the current
year. Also impacting income tax expense was the 1.1% appreciation of the NIS against the
dollar in 2008, as a result of which TAT did not record a tax expense in 2008 with respect
to its operations in Israel. In addition, income tax expense in 2008 was offset by a $0.2
million which was recorded as deferred tax income related to intangible assets included in
the acquisition on Bental.
Net income
. In the year ended
December 31, 2008, net income was $4.3 million, compared with net income of $32.0 million
in the year ended December 31, 2007.
Year ended December 31,
2007 compared with year ended December 31, 2006
Revenues.
Total revenues increased to $88.7 million for the year ended December 31, 2007
from $77.5 million for the year ended December 31, 2006, an increase of 14.4%.
This increase was primarily due to increased MRO and parts services revenues as
a result of increased sales to existing and new customers.
Revenues from MRO services increased
to $49.4 million for the year ended December 31, 2007 from $43.8 million for the year
ended December 31, 2006, an increase of 12.8%. The increase in MRO services revenues in
the year ended December 31, 2007 was primarily attributable to increased sales to
Piedmonts existing customers and, to a lesser degree, to new MRO customers.
Revenues from OEM products increased
to $23.5 million for the year ended December 31, 2007 from $22.1 million for the year
ended December 31, 2006, an increase of 6.3%. The increase in OEM product revenues was
primarily attributable to increased sales to existing customers.
Revenues from parts services
increased to $20.4 million for the year ended December 31, 2007 from $15.2 million for the
year ended December 31, 2006, an increase of 34.2%. The increase in parts sales revenues
was primarily attributable to increased purchases by existing customers and the addition
of one new customer which required parts for the general overhaul of its aircraft.
Cost of revenues
. Cost of
revenues increased to $65.2 million for the year ended December 31, 2007 from $57.6
million for the year ended December 31, 2006, an increase of 13.2%. The increase in cost
of revenues was primarily attributable to the increase in OEM and MRO services revenues
and the significant increase in parts services revenues, resulting in increased costs.
Cost of revenues as a percentage of revenues after eliminating intercompany transactions
decreased to 73.5% in the year ended December 31, 2007 from 74.3% for the year ended
December 31, 2006, primarily as a result of continued efforts to improve operating
efficiencies. All of the following cost of revenues data reflects the elimination of
inter-company transactions.
Cost of revenues for MRO
services
. Cost of revenues for MRO services increased to $35.2 million for the year
ended December 31, 2007 from $32.2 million for the year ended December 31, 2006, an
increase of 9.3%, primarily as a result of increased revenues, resulting in increased
costs. Cost of revenues as a percentage of revenues decreased to 71.3% in the year ended
December 31, 2007 from 73.5% for the year ended December 31, 2006, primarily as a result
of efforts to improve the profitability of MRO services segment.
Cost of revenues for OEM
products.
Cost of revenues for OEM products increased to $17.9 million for the year
ended December 31, 2007 from $16.3 million for the year ended December 31, 2006, an
increase of 9.8%, primarily as a result of its increased revenues. Cost of revenues as a
percentage of revenues increased to 76.2% in the year ended December 31, 2007 from 73.8%
for the year ended December 31, 2006, primarily as a result from a change in the product
mix and increased production costs in 2007.
Cost of revenues for parts
services
. Cost of revenues for parts services increased to $16.6 million for the year
ended December 31, 2007 from $12.8 million for the year ended December 31, 2006, an
increase of 29.7%, primarily as a result of increased parts revenues. Cost of revenues as
a percentage of revenues decreased to 81.5% in the year ended December 31, 2007 from 84.5%
for the year ended December 31, 2006, primarily as a result of efforts to improve the
profitability of the parts segment during 2007.
46
Research and development net.
TAT did not incur any research and development expenses in the years ended December 31,
2007 and 2006.
Selling and marketing
expenses.
Selling and marketing expenses increased to $3.7 million for the year ended
December 31, 2007 from $3.5 million for the year ended December 31, 2006, an increase of
5.7%. The increase in selling and marketing expenses was primarily attributable to
increased commissions paid as a result of increased revenue in 2007. Selling and marketing
expenses as a percentage of revenues increased to 4.2% for the year ended December 31,
2007 from 4.5% for the year ended December 31, 2006.
General and administrative
expenses.
General and administrative expenses increased to $11.0 million for the year
ended December 31, 2007 from $6.7 million for the year ended December 31, 2006, an
increase of 64.2%. The increase in general and administrative expenses is primarily
attributable to increased professional fees of $0.43 million incurred by Limco as a result
of it being a public company, increased compensation expenses of $0.15 million
attributable to executives that were hired or promoted to manage the increased level of
operations, $0.4 million of bonus payments paid in connection with Limcos initial
public offering, $0.39 million of increased stock-based compensation expense and $0.33
million of phantom stock options expense. General and administrative expenses as a
percentage of revenues increased to 12.3% for the year ended December 31, 2007 from 8.6%
for the year ended December 31, 2006.
Operating income.
The
presentation of operating income data is after elimination of intercompany transactions of
$1.6 million in the year ended December 31, 2007 and $1.3 million in the year ended
December 31, 2006 and net of corporate general and administrative expenses of $5.0 million
in the year ended December 31, 2007 and $2.8 million in the year ended December 31, 2006.
Operating income decreased to $8.8
million for the year ended December 31, 2007 from $9.7 million for the year ended December
31, 2006, a decrease of 9.6%. The decrease in operating income was primarily attributable
to an increase in general and administrative expenses and to a lesser extent to an
increase in selling and marketing expenses in 2007. The increased expenses were primarily
attributable to the initial public offering of Limco, expenditures with respect to
Sarbanes-Oxley compliance and increased salary expenses.
Operating income for MRO
services.
The operating income of the MRO services segment increased to $10.1 million
for the year ended December 31, 2007 from $8.7 million for the year ended December 31,
2006, an increase of 15.5%, primarily as a result of the increase in revenues of this
segment, offset in part by the increase in general and administrative and selling and
marketing expenses in 2007. Operating income as a percentage of revenues increased
slightly to 20.5% in the year ended December 31, 2007 from 20.0% for the year ended
December 31, 2006.
Operating income for OEM
products.
The operating income of the OEM products segment decreased to $1.0 million
for the year ended December 31, 2007 from $2.3 million for the year ended December 31,
2006, a decrease of 56.5%, primarily as a result of an increase in general and
administrative expenses attributable to this segment in 2007. The increase in expenses
resulted from increased salary expenses including bonuses, and expenditures with respect
to Sarbanes-Oxley compliance. As a result of these increased expenses, operating income as
a percentage of revenues decreased to 4.3% in the year ended December 31, 2007 from 10.4%
for the year ended December 31, 2006.
Operating income for parts
services.
The operating income of the parts services segment increased to $2.8 million
for the year ended December 31, 2007 from $1.3 million for the year ended December 31,
2006, an increase of 108%, primarily as a result of the increased revenues and
profitability of this segment. Operating income as a percentage of revenues increased to
13.7% in the year ended December 31, 2007 from 8.6% for the year ended December 31, 2006,
primarily as a result of an increase in the absolute gross profit arising from the
increased revenues.
Financial income (expenses),
net.
Financial income, net was $0.7 million for the year ended December 31, 2007
compared to financial expenses, net of $0.46 million for the year ended December 31, 2006.
In 2006, financial expenses related to the interest on the loans TAT incurred in
connection with the purchase of Piedmont. In 2007, financial income was principally
attributable to the investment of a portion of the proceeds Limco and TAT received from
the initial public offering of Limco in July 2007 offset by higher prevailing interest
rate on TATs debt.
47
Other Income
. TAT had other
income of $26.48 million for the year ended December 31, 2007 compared to other income of
$0.59 million for the year ended December 31, 2006. Other income in both periods was
attributable to the sale of marketable securities and equipment and capital gain of $26.4
million for the year ended December 31, 2007 attributable to the sale by Limco and TAT of
shares of common stock of Limco in connection with its initial public offering in July
2007. TAT did not record a capital gain in the year ended December 31, 2006.
Minority Interest.
TAT
recognized a minority interest of $0.78 million in the net profits of Limco for the year
ended December 31, 2007. TAT did not record a minority interest in the year ended December
31, 2006.
Income taxes
. Total income tax
expense for the year ended December 31, 2007 amounted to $3.21 million, compared to $3.25
million for the year ended December 31, 2006. The decrease is primarily due to the 9.0%
appreciation of the NIS against the dollar in 2007, as a result of which the U.S. dollar
cost of the operations in Israel significantly increased and operations in Israel were not
profitable in such period, and therefore, TAT did not record a tax expense in 2007 with
respect to its operations in Israel. In addition, tax expense in 2007 was offset by a
$0.54 million refund of tax previously paid on income from approved enterprise facilities.
TATs effective tax rate in the United States decreased to 20.6% in the year ended
December 31, 2007 from 34.9% in the year ended December 31, 2006, principally as a result
of its receipt of tax-exempt interest from a portion of its investments, which was offset
in part by non-deductible stock-based compensation expenses. Also, the statutory tax rate
in Israel decreased from 31.0% in the year ended December 31, 2006 to 29.0% in the year
ended December 31, 2007.
Net income
. In the year ended
December 31, 2007, net income was $32.0 million, compared with net income of $6.1 million
in the year ended December 31, 2006.
48
Quarterly Results of
Operations
The
following table presents the consolidated statements of operations data for each of the
eight fiscal quarters ended December 31, 2008, in dollars and as a percentage of revenues.
In the opinion of TATs management, this unaudited information has been prepared on
the same basis as TATs audited consolidated financial statements and includes all
adjustments, consisting only of normal recurring adjustments, necessary for fair
presentation of the unaudited information for the quarters presented. The results of
operations for any quarter are not necessarily indicative of results that TAT might
achieve for any subsequent periods.
|
Three months ended
|
|
2008
|
2007
|
|
Dec.
31,
|
Sept.
30,
|
June
30,
|
Mar.
31,
|
Dec.
31,
|
Sept.
30,
|
June
30,
|
Mar.
31,
|
|
(unaudited, $ in thousands)
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
$
|
31,144
|
|
$
|
26,702
|
|
$
|
23,200
|
|
$
|
22,243
|
|
$
|
19,751
|
|
$
|
20,862
|
|
$
|
23,064
|
|
$
|
25,027
|
|
Cost of revenues
|
|
|
|
25,191
|
|
|
20,684
|
|
|
18,266
|
|
|
16,422
|
|
|
15,058
|
|
|
15,959
|
|
|
15,764
|
|
|
18,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
5,953
|
|
|
6,018
|
|
|
4,934
|
|
|
5,821
|
|
|
4,693
|
|
|
4,903
|
|
|
7,300
|
|
|
6,601
|
|
Research and Development
|
|
|
costs
|
|
|
Selling and marketing
|
|
|
expenses
|
|
|
|
1,001
|
|
|
1,329
|
|
|
1,107
|
|
|
932
|
|
|
902
|
|
|
967
|
|
|
976
|
|
|
874
|
|
General and
|
|
|
administrative expenses
|
|
|
|
3,608
|
|
|
3,085
|
|
|
2,807
|
|
|
2,907
|
|
|
2,958
|
|
|
2,348
|
|
|
3,053
|
|
|
2,636
|
|
Relocation expenses
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
1,344
|
|
|
1,604
|
|
|
1,020
|
|
|
1,982
|
|
|
833
|
|
|
1,588
|
|
|
3,271
|
|
|
3,091
|
|
Financial income
|
|
|
|
1,030
|
|
|
379
|
|
|
742
|
|
|
526
|
|
|
557
|
|
|
631
|
|
|
352
|
|
|
167
|
|
Financial expenses
|
|
|
|
(712
|
)
|
|
(172
|
)
|
|
(383
|
)
|
|
(236
|
)
|
|
(51
|
)
|
|
(327
|
)
|
|
(444
|
)
|
|
(184
|
)
|
Other income (expense),
|
|
|
net
|
|
|
|
(236
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(58
|
)
|
|
26,518
|
|
|
18
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income
|
|
|
taxes
|
|
|
|
1,426
|
|
|
1,811
|
|
|
1,379
|
|
|
2,272
|
|
|
1,281
|
|
|
28,410
|
|
|
3,197
|
|
|
3,074
|
|
Income taxes
|
|
|
|
420
|
|
|
818
|
|
|
168
|
|
|
389
|
|
|
(413
|
)
|
|
1,862
|
|
|
1,274
|
|
|
489
|
|
Share in results of
|
|
|
affiliate company
|
|
|
prior to its
|
|
|
consolidation
|
|
|
|
-
|
|
|
240
|
|
|
434
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Minority interest
|
|
|
|
(320
|
)
|
|
(554
|
)
|
|
(241
|
)
|
|
(384
|
)
|
|
(303
|
)
|
|
(468
|
)
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
$
|
686
|
|
$
|
679
|
|
$
|
1,404
|
|
$
|
1,499
|
|
$
|
1,391
|
|
$
|
26,080
|
|
$
|
1,923
|
|
$
|
2,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
Cost of revenues
|
|
|
|
80.9
|
|
|
77.5
|
|
|
78.7
|
|
|
73.7
|
|
|
76.2
|
|
|
76.5
|
|
|
68.3
|
|
|
73.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
19.1
|
|
|
22.5
|
|
|
21.3
|
|
|
26.3
|
|
|
23.8
|
|
|
23.5
|
|
|
31.7
|
|
|
26.4
|
|
Research and Development
|
|
|
costs
|
|
|
Selling and marketing
|
|
|
expenses
|
|
|
|
2.9
|
|
|
5.0
|
|
|
4.8
|
|
|
4.6
|
|
|
4.6
|
|
|
4.6
|
|
|
4.2
|
|
|
3.5
|
|
General and
|
|
|
administrative expenses
|
|
|
|
11.8
|
|
|
11.6
|
|
|
12.1
|
|
|
12.7
|
|
|
15.0
|
|
|
11.3
|
|
|
13.2
|
|
|
10.5
|
|
Relocation expenses
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
4.3
|
|
|
6.0
|
|
|
4.4
|
|
|
8.9
|
|
|
4.2
|
|
|
7.6
|
|
|
14.2
|
|
|
12.4
|
|
Financial income
|
|
|
|
3.3
|
|
|
1.4
|
|
|
3.2
|
|
|
2.3
|
|
|
2.8
|
|
|
3.1
|
|
|
1.5
|
|
|
0.6
|
|
Financial expenses
|
|
|
|
(2.3
|
)
|
|
(0.6
|
)
|
|
(1.7
|
)
|
|
(0.8
|
)
|
|
(0.2
|
)
|
|
(1.6
|
)
|
|
(1.9
|
)
|
|
(0.7
|
)
|
Other income (expense),
|
|
|
net
|
|
|
|
(0.8
|
)
|
|
0
|
|
|
0
|
|
|
0
|
|
|
-
|
|
|
127.1
|
|
|
1
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income
|
|
|
taxes
|
|
|
|
4.6
|
|
|
6.8
|
|
|
5.9
|
|
|
10.2
|
|
|
6.5
|
|
|
136.2
|
|
|
13.5
|
|
|
12.3
|
|
Income taxes
|
|
|
|
1.3
|
|
|
3.1
|
|
|
0.7
|
|
|
1.7
|
|
|
2.1
|
|
|
8.9
|
|
|
5.5
|
|
|
2.0
|
|
Share in results of
|
|
|
affiliate company
|
|
|
prior to its
|
|
|
consolidation
|
|
|
|
-
|
|
|
0.9
|
|
|
1.9
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Minority interest
|
|
|
|
(1.0
|
)
|
|
(2.1
|
)
|
|
(1.0
|
)
|
|
(1.7
|
)
|
|
(1.5
|
)
|
|
(2.2
|
)
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
2.2
|
%
|
|
2.5
|
%
|
|
6.1
|
%
|
|
6.7
|
%
|
|
7.0
|
%
|
|
125.0
|
%
|
|
8.3
|
%
|
|
10.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TAT
expects its operating results to fluctuate significantly in the future as a result of
various factors, many of which are outside of TATs control, including the timing of
orders, the provision of services and deliveries. Consequently, TAT believes that
period-to-period comparisons of its operating results may not necessarily be meaningful,
and as a result, you should not rely on them as an indication of future performance.
49
Seasonality
TAT
believes that the growth of its business over the last three years has masked a historical
seasonal trend in the MRO services sector. Historically, TAT has seen many airlines
decrease their maintenance requirements in the peak air travel summer months and increase
its maintenance requirements in the winter months when air travel is not as great.
Conditions in Israel
TAT
is incorporated under the laws of, and its principal executive offices and manufacturing
and research and development facilities are located in, the State of Israel. See
RISK FACTORS for a description of governmental, economic, fiscal, monetary or
political polices or factors that have materially affected or could materially affect
TATs operations.
Trade Relations
Israel
is a member of the United Nations, the International Monetary Fund, the International Bank
for Reconstruction and Development and the International Finance Corporation. Israel is a
member of the World Trade Organization and is a signatory to the General Agreement on
Tariffs and Trade. In addition, Israel has been granted preferences under the Generalized
System of Preferences from the United States, Australia, Canada and Japan. These
preferences allow Israel to export the products covered by such programs either duty-free
or at reduced tariffs.
Israel
and the European Union Community, known now as the European Union, concluded a
Free Trade Agreement in July 1975 that confers some advantages with respect to Israeli
exports to most European countries and obligates Israel to lower its tariffs with respect
to imports from these countries over a number of years. In 1985, Israel and the United
States entered into an agreement to establish a Free Trade Area. The Free Trade Area has
eliminated all tariff and some non-tariff barriers on most trade between the two
countries. On January 1, 1993, an agreement between Israel and the European Free Trade
Association, known as the EFTA, established a free-trade zone between Israel
and the EFTA nations. In November 1995, Israel entered into a new agreement with the
European Union, which includes a redefinition of rules of origin and other improvements,
such as allowing Israel to become a member of the Research and Technology programs of the
European Union. In recent years, Israel has established commercial and trade relations
with a number of other nations, including Russia, China, India, Turkey and other nations
in Eastern Europe and the Asia-Pacific region.
Impact of Currency
Fluctuation and of Inflation
TAT
reports its financial results in dollars and receives payment in dollars or dollar-linked
NIS for all of its sales while it incurs a portion of its expenses, principally salaries
and related personnel expenses, in NIS. Additionally, certain assets, as well as a portion
of its liabilities, are denominated in NIS. Therefore, the dollar cost of its operations
is influenced by the extent to which any inflation in Israel is offset on a lagging basis,
or is not offset by the devaluation of the NIS in relation to the U.S. dollar. When the
rate of inflation in Israel exceeds the rate of devaluation of the NIS against the U.S.
dollar, the dollar cost of operations in Israel increases. If the dollar cost of
operations in Israel increases, its dollar-measured results of operations will be
adversely affected. TAT cannot assure you that TAT will not be materially and adversely
affected in the future if inflation in Israel exceeds the devaluation of the NIS against
the dollar or if the timing of the devaluation lags behind inflation in Israel.
50
The
following table presents information about the rate of inflation in Israel, the rate of
devaluation (appreciation) of the NIS against the U.S. dollar, and the rate of inflation
of Israel adjusted for the devaluation:
|
Year ended
December 31,
|
Israeli inflation
rate%
|
NIS
appreciation
(devaluation)
rate%
|
Israeli inflation
adjusted for
appreciation
(devaluation) %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
|
(1.9
|
)
|
|
7.6
|
|
|
5.7
|
|
|
2004
|
|
|
|
1.2
|
|
|
1.6
|
|
|
2.8
|
|
|
2005
|
|
|
|
2.4
|
|
|
(6.8
|
)
|
|
(4.4
|
)
|
|
2006
|
|
|
|
(0.1
|
)
|
|
8.2
|
|
|
8.1
|
|
|
2007
|
|
|
|
3.4
|
|
|
9.0
|
|
|
12.4
|
|
|
2008
|
|
|
|
3.8
|
|
|
1.1
|
|
|
4.9
|
|
|
|
|
|
|
A
devaluation of the NIS in relation to the U.S. dollar has the effect of reducing the U.S.
dollar amount of any of its expenses or liabilities which are payable in NIS, unless these
expenses or payables are linked to the U.S. dollar. This devaluation also has the effect
of decreasing the U.S. dollar value of any asset which consists of NIS or receivables
payable in NIS, unless the receivables are linked to the U.S. dollar. Conversely, any
increase in the value of the NIS in relation to the U.S. dollar has the effect of
increasing the U.S. dollar value of any unlinked NIS assets and the U.S. dollar amounts of
any unlinked NIS liabilities and expenses. During the years 2007 and 2008, the NIS
appreciated against the U.S. dollar, which resulted in a significant increase in the U.S.
dollar cost of TATs NIS expenses. Such trend was reversed during the first three
months of 2009 since the U.S. dollar strongly devaluated compared to the NIS.
Because
exchange rates between the NIS and the dollar fluctuate continuously, exchange rate
fluctuations and especially larger periodic devaluations will have an impact on TATs
profitability and period-to-period comparisons of its results. The effects of foreign
currency re-measurements are reported in TATs consolidated financial statements in
current operations. TAT cannot assure you that in the future its results of operations may
not be materially adversely affected by currency fluctuations.
Corporate Tax Rate
Israeli
companies are generally subject to income tax on their taxable income. The applicable rate
for 2008 was 27% and will be further reduced to 26% in 2009 and 25% in 2010 and
thereafter. However, the rate is effectively reduced for income derived from an approved
enterprise and beneficiary enterprise. Because TAT has elected to participate in the
alternative package of tax benefits for its current approved enterprise and beneficiary
enterprise under the Law for the Encouragement of Capital Investments, 1959, as amended,
the income derived from those enterprises will be exempt from Israeli corporate tax for a
specified benefit period (except to the extent that dividends are distributed during the
tax-exemption period other than upon liquidation) and subject to reduced corporate tax
rates for an additional period. The tax benefits attributable to its current approved
enterprise and beneficiary enterprise are scheduled to expire in phases between 2009 and
2017. Certain investment income derived by TAT from investments may not be regarded by the
Israeli tax authorities as income from TATs approved and beneficiary enterprises and
consequently may be taxed at the regular statutory rate in Israel.
Certain
of TATs subsidiaries operate in and are subject to the tax laws of various other
jurisdictions, primarily the United States. TATs U.S. subsidiaries are taxed based
on federal and state tax laws. The effective tax of TATs U.S. subsidiaries was
41.5%, 35.6% and 36.8% in the years ended December 31, 2008, 2007 and 2006, respectively.
Recently Issued
Accounting Standards
In
September 2006, the FASB issued SFAS No. 157,
Fair Value Measurement,
or SFAS 157. SFAS 157 defines fair value, establishes a framework for the measurement of
fair value, and enhances disclosures about fair value measurements. The statement does not
require any new fair value measures. SFAS 157 is effective for fair value measures already
required or permitted by other standards for fiscal years beginning after November 15,
2007. TAT is required to adopt SFAS 157 beginning on January 1, 2008. SFAS 157 is required
to be applied prospectively, except for certain financial instruments. Any transition
adjustment will be recognized as an adjustment to opening retained earnings in the year of
adoption. The FASB announced a one year deferral of SFAS 157s fair value measurement
requirements for non-financial assets and liabilities that are not required or permitted
to be measured at fair value on a recurring basis. TAT adopted SFAS 157 subsequent to
December 31, 2007 but it did not have any effect on TATs financial position and
results of operations.
51
In
February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial
Assets and Financial Liabilities including an amendment of FASB No. 115,
or SFAS 159. SFAS 159 provides TAT the irrevocable option to carry most financial assets
and liabilities at fair value that are not currently required to be measured at fair
value. If the fair value is elected, changes in fair value would be recorded in earnings
at each subsequent reporting date. SFAS 159 is effective as of the beginning of an
entitys first fiscal year beginning after November 15, 2007. Accordingly, TAT may
elect to adopt SFAS 159 on January 1, 2008. TAT adopted SFAS 159 subsequent to December
31, 2007 but it did not have any effect on TATs financial position and results of
operations.
In
December 2007, the FASB issued SFAS No. 141(R),
Business Combinations
(SFAS 141(R)). SFAS 141(R) expands the definition of transactions and events
that qualify as business combinations; requires that the acquired assets and liabilities,
including contingencies, be recorded at the fair value determined on the acquisition date
and changes thereafter reflected in revenue, not goodwill; changes the recognition timing
for restructuring costs; and requires acquisition costs to be expensed as
incurred. Adoption of SFAS 141(R) is required for annual periods beginning
after December 15, 2008. Early adoption and retroactive application of SFAS
141(R) to fiscal years preceding the effective date are not permitted. The
adoption of SFAS 141 (R) will be effective for business combinations consummated in 2009.
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interest in Consolidated
Financial Statements (SFAS 160). SFAS 160 re-characterizes minority
interests in consolidated subsidiaries as non-controlling interests and requires the
classification of minority interests as a component of equity. Under SFAS 160,
a change in control will be measured at fair value, with any gain or loss recognized in
earnings. The effective date for SFAS 160 is for annual periods beginning on or
after December 15, 2008. SFAS 160 requires retroactive adoption of the
presentation and disclosure requirements for existing noncontrolling interests. All other
requirements of SFAS 160 shall be applied prospectively. As a result of the adoption of
SFAS 160 in its financial statements for periods commencing January 1, 2009, TAT will
classify the noncontrolling interest as a component of equity.
In
March 2008, the FASB issued SFAS No. 161 (SFAS 161),
Disclosures about Derivative
Instruments and Hedging Activities
, as an amendment to SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities. SFAS 161 requires that objectives for
using derivative instruments be disclosed in terms of underlying risk and accounting
designation. The fair value of derivative instruments and their gains and losses will need
to be presented in tabular format in order to present a more complete picture of the
effects of using derivative instruments. SFAS 161 is effective for financial statements
issued for fiscal years beginning after November 15, 2008. The adoption of SFAS 161
is not expected to have a material impact on TATs interim financial statements.
In
April 2008, the FASB issued FSP No. FAS 142-3,
Determination of the Useful
Life of Intangible Assets,
which amends the list of factors an entity should
consider in developing renewal or extension assumptions used in determining the useful
life of recognized intangible assets under SFAS No. 142, Goodwill and Other
Intangible Assets. The new guidance applies to (1) intangible assets that are
acquired individually or with a group of other assets and (2) intangible assets
acquired in both business combinations and asset acquisitions. Under FSP No. FAS 142-3,
entities estimating the useful life of a recognized intangible asset must consider their
historical experience in renewing or extending similar arrangements or, in the absence of
historical experience, must consider assumptions that market participants would use about
renewal or extension. This FSP will require certain additional disclosures for TATs
2009 fiscal year and the application to useful life estimates prospectively for intangible
assets acquired after December 15, 2008. TAT adopted FSP No. FAS 142-3 as of the
beginning of fiscal year 2009. TATs adoption of FSP No. FAS 142-3 is not expected to
have a material impact on its financial statements.
52
Liquidity and Capital
Resources
In 2008, TAT received loans in the
total amount of a $5 million from Bank Mizrahi to finance the acquisition of Bentals
shares.
TAT had cash and cash equivalents and
short-term deposits of $33.9 as of December 31, 2008, as compared with cash and cash
equivalents and short-term deposits of $15.1 million as of December 31, 2007. The increase
in cash and cash equivalents in 2008 is primarily a result of the $26 million proceeds
received from the sale of TATs short term investments net of $9 million purchases of
short term investments.
Capital expenditures for the years
ended December 31, 2008, 2007 and 2006 were approximately $3.5 million, $6.3 million and
$1.7 million, respectively. These capital expenditures were principally for the purchase
of equipment for the OEM and MRO facilities. TAT funded these expenditures from cash flows
from operations, with the exception in year 2007, where TAT also financed its capital
expenditure from cash flow from financing activities, derived from the initial public
offering of Limco in July 2007. TAT expects that capital expenditures for 2009 will
decrease and will be primarily for expanded capabilities and capacity for OEM operations
and MRO services. TAT expects that its available cash and cash equivalents and cash flow
that will be generated from operations will be sufficient to enable it fund its capital
expenditures.
TAT believes that anticipated cash
flow from operations and its current cash balances will be sufficient to meet its cash
requirements for at least 12 months. TATs future capital requirements will depend on
many factors, including its rate of revenue growth, the expansion of its selling and
marketing activities, costs associated with expansion into new markets and the timing of
the introduction of new products and services.
Cash Flows
The following table summarizes
TATs cash flows for the periods presented:
|
|
Year Ended December 31,
|
|
|
(in thousands)
|
|
|
2008
|
2007
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
$
|
1,692
|
|
$
|
804
|
|
$
|
5,153
|
|
|
Net cash provided by (used in) investing activities
|
|
|
|
12,368
|
|
|
(24,719
|
)
|
|
(2,283
|
)
|
|
Net cash provided by (used in) financing activities
|
|
|
|
5,170
|
|
|
33,267
|
|
|
(4,091
|
)
|
|
Effect of changes in exchange rate on cash and cash
|
|
|
|
equivalents of foreign currency subsidiary company
|
|
|
|
(445
|
)
|
|
-
|
|
|
-
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
|
18,785
|
|
|
9,352
|
|
|
(1,221
|
)
|
|
Cash and cash equivalents at beginning of the year
|
|
|
|
15,114
|
|
|
5,762
|
|
|
6,983
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of the year
|
|
|
$
|
33,899
|
|
$
|
15,114
|
|
$
|
5,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TATs cash and cash equivalents
increased significantly in 2008 as a result of approximately $17.0 in net proceeds from
selling corporate and municipal bonds, ending 2008 with $33.9 millions compared to $15.1
millions in December 31, 2007. TATs cash and cash equivalents increased
significantly in 2007 as a result of the initial public offering of its Limco subsidiary
and the net cash provided from this financing activity. TAT received proceeds of $50.0
million, net of issuance costs, of which $8.7 million was received from the sale of
855,000 shares of common stock of Limco in the offering. TATs receipt of these
proceeds was the primary reason that its cash and cash equivalents grew to $15.1 million
at December 31, 2007 from $5.8 million at December 31, 2006.
Net cash provided by operating
activities was approximately $1.7 million, $0.8 million and $5.2 million for the years
ended December 31, 2008, 2007 and 2006, respectively. Net cash provided by operating
activities for the year ended December 31, 2008 was primarily attributable to net income
of $4.3 million, and in addition to depreciation and amortization of $3.4 million and a
$1.5 million increase in the minority shares of profit for the period, which was primarily
offset by a $2.4 million increase in inventories, a $4.2 million increase in trade
receivables, and a $0.9 million increase in other accounts receivables. The increase in
trade receivables in 2008 resulted primarily from the increased revenues. The increase in
inventories in 2008 resulted from purchases of inventories in relatively large quantities
sufficient to support long term contracts, enabling TAT to enjoy relatively lower prices.
53
Net cash provided by operating
activities for the year ended December 31, 2007 was primarily attributable to net income
of $31.97 million, which was offset by a $26.4 million capital gain that TAT recognized as
a result of the sale of shares of Limco in connection with Limcos initial public
offering in July 2007, depreciation and amortization of $2.03 million, a $3.3 million
increase in inventories, a $0.99 million increase in trade receivables, a $1.6 million
decrease in other accounts payable and accrued expenses and a $0.96 million decrease in
trade payables. The increase in trade receivables in 2007, resulted primarily from the
increased revenues. The decrease in trade and other payables in 2007 resulted from the
significant increase in these balances in 2006 that were paid for during 2007, partially
from the proceeds of Limco offering. The increase in inventories in 2007 resulted from
purchases of inventories in relatively large quantities sufficient to support long term
contracts, enabling TAT to enjoy relatively lower prices.
Net cash provided by operating
activities for the year ended December 31, 2006 was primarily attributable to net income
of $6.1 million, depreciation and amortization of $1.8 million, an increase in other
accounts payable and accrued expenses of $0.51 million, a $2.6 million increase in trade
payables, which was offset by a $2.6 million increase in trade receivables, and a $2.5
million increase in inventories.
Net cash provided by investing
activities was approximately $12.4 million for the year ended December 31, 2008, compared
to net cash used in investing activities of approximately $24.8 million for the year ended
December 31, 2007 and net cash used in investing activities of approximately $2.3 million
for the year ended December 31, 2006. Of the cash provided by investing activities in the
year ended December 31, 2008, approximately $26.4 million were provided by proceeds
received by Limco from selling corporate and municipal bonds, offset by $9.3 million used
for the purchase of short term investments and $3.6 million used for the purchase of
property and equipment, primarily production equipments and building improvements.
Of the cash used in investing
activities in the year ended December 31, 2007, approximately $6.3 million was used for
the purchase of property and equipment, primarily production equipments and building
improvements, $28.8 million was used for the purchase by Limco of auction rate tax-exempt
securities. In addition $8.7 million proceeds were received from sale of shares of Limco
in connection with Limcos initial public offering in July 2007. Of the cash used in
investing activities in the year ended December 31, 2006, approximately $1.7 million was
used for the purchase of property and equipment, primarily production equipments and
building improvements and $1.0 million was attributable to bank deposits.
Net cash provided by financing
activities was approximately $5.2 million for the year ended December 31, 2008, compared
to net cash used in financing activities of approximately $33.3 million for the year ended
December 31, 2007 and net cash provided by financing activities of approximately $4.1
million for the year ended December 31, 2006. In the year ended December 31, 2008, the net
cash provided was primarily attributable to the receiving of a $5.0 million loan from
financial institution, repayable in 3-5 years.
In the year ended December 31, 2007,
the net cash provided was primarily attributable to the initial public offering of Limco
in July 2007. In October 2007, TAT distributed a cash dividend of approximately $2.6
million, and in July 2007, TAT repaid all of its then outstanding long-term loans in the
aggregate amount of $8.0 million. In the year ended December 31, 2006, net cash used in
financing activities was primarily attributable to the payment of a cash dividend of $1.2
million and the repayment of $3.0 million of long-term loans.
A.
|
Research
and Development, Patents and Licenses
|
Not
applicable
Our
revenues in the US in fiscal 2009 are expected to be impacted by the decline in the
aerospace industry. Although we anticipate this trend to continue for the foreseeable
future, we expect that as the aerospace industry recovers, our revenues will again
trend upward
54
Other
than the above mentioned, there are no significant recent trends that are material to
production, sales and inventory, the state of the order book and costs and selling prices
since the latest fiscal year.
C.
|
Off-Balance
Sheet Arrangements
|
We
are not a party to any material off-balance sheet arrangements. In addition, we have no
unconsolidated special purpose financing or partnership entities that are likely to create
material contingent obligations.
D.
|
Tabular
Disclosure of Contractual Obligations
|
The
following table summarizes our minimum contractual obligations and commercial commitments
as of December 31, 2008 and the effect we expect them to have on our liquidity and cash
flow in future periods.
Contractual Obligations
|
Payments due by Period
|
|
Total
|
Less than 1
year
|
1-3 Years
|
3-5 Years
|
More than
5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt obligations
|
|
|
$
|
5,338,000
|
|
$
|
150,000
|
|
$
|
188,000
|
|
$
|
1,500,000
|
|
$
|
3,500,000
|
|
Operating lease obligations (1)
|
|
|
|
1,678,000
|
|
|
582,000
|
|
|
793,000
|
|
|
193,000
|
|
|
110,000
|
|
Estimated long-term loan interest
|
|
|
|
810,000
|
|
|
190,000
|
|
|
370,000
|
|
|
250,000
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
7,826,000
|
|
$
|
922,000
|
|
$
|
1,351,000
|
|
$
|
1,943,000
|
|
$
|
3,610,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Pursuant
to the terms of the agreement we entered into with TAT Industries in 2000
to purchase its operations relating to the manufacture of aviation
accessories, we entered into an agreement, pursuant to which we rent from
TAT Industries, effective as of January 1, 2000, the real estate and
buildings encompassing an area of approximately 302,000 square feet for a
period of 24 years and eleven months. In consideration we agreed to pay
TAT Industries annual rental payments of approximately $329,000 for the
year ended December 31, 2008 with an additional incremental payment of 2%
per year. Such rental rates are subject to revaluation every fifth year.
|
In
addition, we have long-term liabilities for severance pay that is calculated pursuant to
Israeli severance pay law generally based on the most recent salary of the employees
multiplied by the number of years of employment, as of the balance sheet date. Employees
are entitled to one months salary for each year of employment or a portion thereof.
As of December 31, 2008, our severance pay liability, net was $763,460.
55
Item 6.
|
|
Directors, Senior Management and Employees
|
A.
|
Directors
and Senior Management
|
Set
forth below are the name, age, principal position and a biographical description of each
of our directors and executive officers:
|
Name
|
Age
|
Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Giora Inbar
|
53
|
Chairman of the Board of Directors
|
|
Shmuel Fledel
|
55
|
Chief Executive Officer
|
|
Yaron Shalem
|
36
|
Chief Financial Officer
|
|
Nathan Galili
|
53
|
Vice President Operations
|
|
Shai Lustgarten
|
39
|
Director of Marketing and Business Development
|
|
Rami Daniel
|
43
|
External Director
|
|
Avi Shani
|
61
|
External Director
|
|
Dr. Avraham Ortal
|
43
|
Director
|
|
Eran Saar
|
36
|
Director
|
|
Daniela Yaron-Zoller
|
42
|
Director
|
|
|
|
|
Brigadier General (Res.) Giora
Inbar
was elected as the Chairman of TATs Board of Directors in
January 2008. Brigadier General (Res.) Inbar currently serves as the chairman of the Board
of Directors of Isal Amlat, TATs controlling shareholder, and as the chief executive
officer of KMN Holdings Ltd., the parent of Isal Amlat. Brigadier General (Res.) Inbar
also serves as chairman of the Board of Directors of a number of companies in the KMN
Group, including TATs parent company TAT Industries. Brigadier General (Res.) Inbar
served in the Israel Defense Forces for 25 years retiring with the rank of Brigadier
General in 1998. Brigadier General (Res.) Inbar holds a B.A. degree and an MBA degree in
Business Administration from Haifa University and is also a graduate of the US Army War
College.
Dr.
Shmuel Fledel
has served as TATs Chief Executive Officer
since May 2008. Prior to joining TAT company, between the years 2005 and 2008,
Dr. Fledel served as Vice President, Maintenance and Engineering of El-AL Israel
Airlines Ltd. From 1998 to 2005, Dr. Fledel served as the Chief Executive
Officer of Cyclone Aviation Products Ltd., an Israeli company which serves as
the Elbit Systems Groups design and production center for metal and
composite structural aircraft components and parts for leading aerospace
companies and OEMs. From 1995 to 1998, Col (Res.). Fledel served as the Depot
Commander of the Israeli Air Force. Dr. Fledel holds a Ph.D. and a MSr. degree
in Structural Dynamics, both from the University of Maryland, and a BSc. degree
in Aeronautical Engineering from the Technion Israel Institute of
Technology.
Yaron Shalem
has
served as TATs Chief Financial Officer since August 2008. Prior to that, between the
years 2006 and 2008 Mr. Shalem served as the CFO of OrganiTech USA Inc. a provider
of high-tech hydroponics factories. Prior to that, during years 2003-2005 Mr. Shalem
served as the CFO of Arelnet Ltd. a provider of IP based telecom switches. Before
that Mr. Shalem was the CFO of CellPay Ltd, an Israeli start-up provider in the Mobile
Payment arena. Mr. Shalem holds a B.A. in Economy & Accounting from Tel Aviv
University and an EMBA from Bar-Ilan University.
Nathan Galili
has served as TATs VP Operations since August 2008. Prior to that Mr. Galili served
for many years at IAI (Israeli Aerospace Industries Ltd.). During 2007 he served at IAI as
General Manager of the Boeing 787 program, and prior to that, during 1995-2006 as General
Manager of the Ramta Division of IAI (dealing with development of Fast Attack Craft, Built
to Print and Built to Spec of Aerostructure Components, armored vehicles, UGVs
etc.). During 1992-1994 Mr. Galili was the Deputy General manager of the Lahav Division of
IAI, dealing with the design and upgrade of Fighter and Training Aircraft. Mr. Galili
holds B.Sc. in Aeronautical Engineering from Technion Haifa and MBA from Bar-Ilan
University.
Shai Lustgarten
has served as TATs Director of Marketing and Business Development since December
2008. From 1992 until 1997, Mr. Lustgarten served as the Assistant Military Attached at
the Embassy of Israel in Washington D.C. From 1997 through 2005, Mr. Lustgarten served as
the VP Marketing of Turbine Components Europe Ltd. and as Director Marketing and Business
Development at Haargaz, from 2006 to 2007. He later served as Director of Business
Development and Marketing of S.G.D. Engineering, from 2007 to 2008. Mr. Lustgarten holds a
B.Sc. in Business Management & Computer Communications from the University of
Maryland.
56
Rami Daniel
has
served as an outside director (within the meaning of the Israeli Companies Law) since June
10, 2004 and is a member of TATs Audit Committee. Mr. Daniel has served as Vice
President of Finance of Ganden Real Estate since 2001. Mr. Daniel is licensed as a
certified public accountant in Israel and holds a B.S.c. degree in Economics from the
College of Management in Tel Aviv.
Avi Shani
has
served as an outside director (within the meaning of the Israeli Companies Law) since
August 2008 and is a member of TATs Audit Committee. Mr. Shani is also serving as a
director in Psagot Providence Funds and in Calanit Carmon Ltd. Since 2005 until 2008 Mr.
Shani served as the CEO of TCM Mobile, a start up company, and prior to that, during years
2004 2008 he served as Executive Vice President Investments and Chief Economist of
IDB Development, a leading Israeli holding company, in charge of new Investments. Mr.
Shani holds a B.S.c. degree in Economics and MBA, both from Tel Aviv University.
Dr.
Avraham Ortal
was elected as a director in January 2008. Since
February 2008, Dr. Ortal has served as the chief executive officer of KMN
Capital Ltd., a subsidiary of KMN Holdings Ltd., the parent of Isal Amlat, and
as the vice president of KMN Holdings Ltd., and is responsible for all of its
international operations. From March 1999 to January 2008, Dr. Ortal was a
partner in the law firm of Zellermayer, Pelossof & Co. of Tel Aviv, Israel.
Prior to joining Zellermayer, Pelossof & Co., Dr. Ortal was an associate at
the New York law firm Davis Polk & Wardell and was an Adjunct Lecturer
(Mergers & Acquisitions) at the Duke University School of Law. Dr. Ortal
holds an LL.B. degree from the College of Management, an L.L.M. degree from Duke
University School of Law and an S.J.D. degree from Duke University.
Eran Saar
was
elected as a director in January 2008. Since June 2006, Mr. Saar has served as the chief
executive officer of Isal Amlat, TATs controlling shareholder, and as chief
financial officer of KMN Holdings Ltd., the parent of Isal Amlat. Mr. Saar serves as a
member of the Board of Directors of seven companies in the KMN Group, including TATs
parent company TAT Industries. From 2005 to 2006, Mr. Saar served as the deputy director
of the corporate finance department of the Israeli Securities Authority. Mr. Saar holds a
B.A. degree in Law and Accounting and an MBA degree, both from the Hebrew University of
Jerusalem.
Daniela
Yaron-Zoller
was elected as a director in January 2008. Ms. Yaron-Zoller
currently serves as a director of the strategic customer division of NESS Technologies
Ltd. Ms. Yaron-Zoller also serves as a member of the Board of Directors of several
companies in the KMN Group, including TATs parent company TAT Industries, and of
Mekorot Water Company Ltd. Ms. Yaron-Zoller holds a B.A. degree in Law from the University
of Tel Aviv.
Compensation
The
following table sets forth all the compensation TAT paid with respect to all of its
directors and executive officers as a group for the year ended December 31, 2008.
|
Salaries, fees,
Commissions and
bonuses
|
Other benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
All directors and executive officers as a group (17 persons)
|
|
|
$
|
2,940,000
|
|
$
|
130,000
|
|
|
|
|
During
the year ended December 31, 2008, TAT paid its directors, other than Messrs. Giora Inbar,
Dr. Avraham Ortal and Eran Saar (who received no compensation), the minimum amounts
permitted by law to an outside director (within the meaning of the Israeli companies Law)
which was: a per meeting attendance fee of NIS 2,200 (approximately $615), plus an annual
fee of NIS 59,100 (approximately $16,514).
The
above table includes compensation to 7 executive managers that retired during the year
ended December 31, 2008.
57
Introduction
According
to the Israeli Companies Law and our articles of association, the management of our
business is vested in our board of directors. The board of directors may exercise all
powers and may take all actions that are not specifically granted to our shareholders. Our
executive officers are responsible for our day-to-day management. Our executive officers
have individual responsibilities established by our chief executive officer and board of
directors.
Election of Directors
Our
articles of association provide for a board of directors consisting of no less than two
and no more than eleven members or such other number as may be determined from time to
time at a general meeting of shareholders. Our board of directors is currently composed of
6
directors, including two outside directors within the meaning of the Israeli
Companies Law.
Pursuant
to our articles of association, all of our directors (except the outside directors) are
elected at our annual general meeting of shareholders by a vote of the holders of a
majority of the voting power represented and voting at such meeting and hold office until
the next annual general meeting of shareholders and until their successors have been
elected. All the members of our Board of Directors (except the outside directors) may be
reelected upon completion of their term of office. Our board of directors may temporarily
fill vacancies in the board until the next annual meeting of shareholders, provided that
the total number of directors will not exceed the maximum number permitted under our
articles of association.
The
Israeli Companies Law requires the board of directors of a public company to determine a
minimum number of directors with accounting and financial expertise. Our board
of directors determined, accordingly, that at least two directors must have
accounting and financial expertise, as such term is defined by regulations
promulgated under the Israeli Companies Law.
We
are exempt from the requirements of the NASDAQ Marketplace Rules with regard to the
nomination process of directors since we are a controlled company within the meaning of
NASDAQ Marketplace Rule 5615(c)(2). See below in this Item 6C. Directors, Senior
Management and Employees Board Practices NASDAQ Exemptions for a Controlled
Company.
Outside and Independent
Directors
Outside
Directors
. Under the Israeli Companies Law, Israeli companies whose shares have been
offered to the public are required to appoint at least two outside directors. The Israeli
Companies Law provides that a person may not be appointed as an outside director if the
person, or the persons relative, partner, employer or an entity under that
persons control, has or had during the two years preceding the date of appointment
any affiliation with the company, or any entity controlling, controlled by or under common
control with the company. The term relative means a spouse, sibling, parent,
grandparent, child or child of spouse or spouse of any of the above. The term
affiliation includes an employment relationship, a business or professional
relationship maintained on a regular basis, control and service as an office holder
excluding service as an outside director of a company that is offering its shares to the
public for the first time.
In
addition, no person may serve as an outside director if the persons position or
other activities create, or may create, a conflict of interest with the persons
responsibilities as director or may otherwise interfere with the persons ability to
serve as director. If, at the time an outside director is appointed all members of the
board of directors are of the same gender, then that outside director must be of the other
gender. A director of one company may not be appointed as an outside director of another
company if a director of the other company is acting as an outside director of the first
company at such time.
A
person is qualified to serve as an outside director only if he or she has accounting
and financial expertise or professional qualifications, as such terms
are defined by regulations promulgated under the Israeli Companies Law. At least one of
the outside directors must have accounting and financial expertise. Each of
our outside directors, Messrs. Rami Daniel and Avi Shani, has accounting and
financial expertise.
58
The
outside directors are elected by a majority vote at a shareholders meeting. The
shareholders voting in favor of their election must include at least one-third of the
shares of the non-controlling shareholders of the company who voted on the matter (not
including abstentions). This minority approval requirement need not be met if the total
shareholdings of those non-controlling shareholders who vote against their election
represent 1% or less of all of the voting rights in the company.
In
general, outside directors serve for a three-year term and may be reelected to one
additional three-year term. An outside director may be removed from office at the
initiative of the board of directors at a special general meeting of shareholders, if the
board resolves that the statutory requirements for that persons appointment as
outside director no longer exist, or that the outside director has violated his or her
duty of loyalty to the company. The resolution of the special general meeting of
shareholders regarding the termination of office of an outside director requires the same
majority that is required for the election of an outside director. The court may order the
termination of the office of an outside director on the same grounds, following a motion
filed by a director or a shareholder. If an outside directorship becomes vacant, the board
of directors is required under the Israeli Companies law to convene a shareholders meeting
immediately to appoint a new outside director.
Each
committee of the board of directors that is authorized to exercise powers vested in the
board of directors must include at least one outside director and the audit committee must
include all of the outside directors. An outside director is entitled to compensation as
provided in regulations adopted under the Israeli Companies Law and is otherwise
prohibited from receiving any other compensation, directly or indirectly, in connection
with such service.
Until
the lapse of two year from termination of office, we may not engage an outside director to
serve as an office holder and cannot employ or receive services from that person, either
directly or indirectly, including through a corporation controlled by that person.
Messrs.
Rami Daniel and Avi Shani serve as our outside directors under the Israeli
Companies Law. Mr Daniel will serve until our 2010 annual general meeting of
shareholders, following which his service as an outside director may not be
extended. Mr. Shani will serve until our 2011 annual general meeting of
shareholders, following which his service as an outside director may not be
extended.
Independent
Directors. NASDAQ Marketplace Rules require us to establish an audit committee
comprised of at least three members and only of independent directors each of whom
satisfies the respective independence requirements of the Securities and
Exchange Commission and NASDAQ.
As
a controlled company, within the meaning of NASDAQ Marketplace Rule 5615(c)(2), we are
exempt from the NASDAQ Marketplace Rule which requires that a majority of our board of
directors qualify as independent directors, within the meaning of the NASDAQ Marketplace
Rules. See Item 6.C. Directors, Senior Management and Employees Board
Practices NASDAQ Exemptions for a Controlled Company.
The
independent directors of our company will meet at the meetings of the audit committee to
discuss our annual and interim financial statements. At such sessions the independent
directors will also discuss and approve transaction with interested parties, including
recommending the compensation of all our senior officers, and will also nominate directors
to be approved by our shareholders at the annual general meeting of shareholders. Our
executive officers do not participate in any discussions or decisions that involve any
aspect of their compensation.
Our
board of directors has determined that Messrs. Rami Daniel and Avi Shani both qualify both
as independent directors under the requirements of the Securities and Exchange Commission
and NASDAQ and as outside directors under the Israeli Companies Law requirements. Our
board of directors has further determined that Ms. Daniela Yaron-Zoller qualifies as an
independent director under the requirements of the Securities and Exchange Commission and
NASDAQ.
59
Audit Committee
Under
the Israeli Companies Law, the board of directors of any public company must establish an
audit committee. The audit committee must consist of at least three directors and must
include all of the outside directors. The audit committee may not include the chairman of
the board of directors, any director employed by the company or providing services to the
company on an ongoing basis, or a controlling shareholder or any of the controlling
shareholders relatives.
In
addition, the NASDAQ Marketplace Rules require us to establish an audit committee
comprised of at least three members, all of whom must be independent directors, each of
whom is financially literate and satisfies the respective independence
requirements of the Securities and Exchange Commission and NASDAQ and one of whom has
accounting or related financial management expertise at senior levels within a company.
Our
audit committee assists our Board of Directors in overseeing the accounting and financial
reporting processes of our company and audits of our financial statements, including the
integrity of our financial statements, compliance with legal and regulatory requirements,
our independent registered public accountants qualifications and independence, the
performance of our internal audit function and independent registered public accountants,
finding any defects in the business management of our company and proposing to our Board
of Directors ways to correct such defects, approving related-party transactions as
required by Israeli law, and such other duties as may be directed by our Board of
Directors. The audit committee may consult from time to time with our independent auditors
and internal auditor with respect to matters involving financial reporting and internal
accounting controls.
Our
audit committee consists of three members of our Board of Directors who satisfy the
respective independence requirements of the Securities and Exchange
Commission, NASDAQ and Israeli law for audit committee members. Our current audit
committee members are Messrs. Rami Daniel (who serves as the chairman of the audit
committee) and Avi Shani, our outside directors under Israeli law, and Ms. Daniela
Yaron-Zoller. Our Board of Directors has determined that each of Rami Daniel and Avi Shani
qualifies as an audit committee financial expert, as defined by rules of the Securities
and Exchange Commission. The audit committee meets at least once each quarter.
Internal Audit
The Israeli Companies Law requires
the board of directors of a public company to appoint an internal auditor nominated by the
audit committee. The role of the internal auditor is to examine, among other things, the
compliance of the companys conduct with applicable law and orderly business
practice. The internal auditor must meet certain statutory requirements of independence.
On December 2008, we announced the resignation of our internal auditor, Mr.Yair Shilhav,
and the nomination of Mr. Doron Cohen to serve as our new internal auditor effective as of
December 24, 2008.
Directors Service
Contracts
There
are no arrangements or understandings between us and any of our subsidiaries, on the one
hand, and any of our directors, on the other hand, providing for benefits upon termination
of their employment or service as directors of our company or any of our subsidiaries.
60
Approval of Related
Party Transactions Under Israeli Law
Fiduciary Duties of
Office Holders
The
Israeli Companies Law codifies the fiduciary duties that office holders,
including directors and executive officers, owe to a company. An office holder
is defined in the Israeli Companies Law as a director, general manager, chief business
manager, deputy general manager, vice general manager, other manager directly subordinate
to the general manager or any other person assuming the responsibilities of any of the
foregoing positions without regard to such persons title. An office holders
fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care
requires an office holder to act at a level of care that a reasonable office holder in the
same position would employ under the same circumstances. This includes the duty to utilize
reasonable means to obtain (i) information regarding the business feasibility of a given
action brought for his approval or performed by him by virtue of his position and (ii) all
other information of importance pertaining to the foregoing actions. The duty of loyalty
requires that an office holder act in good faith and for the benefit of the company,
including (i) avoiding any conflict of interest between the office holders position
in the company and any other position he holds or his personal affairs, (ii) avoiding any
competition with the companys business, (iii) avoiding exploiting any business
opportunity of the company in order to receive personal gain for the office holder or
others, and (iv) disclosing to the company any information or documents relating to the
companys affairs that the office holder has received by virtue of his position as an
office holder.
Disclosure of Personal
Interests of an Office Holder; Approval of Transactions with Office Holders
The
Israeli Companies Law requires that an office holder promptly, and no later than the first
board meeting at which such transaction is considered, disclose any personal interest that
he or she may have and all related material information known to him or her and any
documents in their position, in connection with any existing or proposed transaction by
us. In addition, if the transaction is an extraordinary transaction, that is, a
transaction other than in the ordinary course of business, other than on market terms, or
likely to have a material impact on the companys profitability, assets or
liabilities, the office holder must also disclose any personal interest held by the office
holders spouse, siblings, parents, grandparents, descendants, spouses
descendants and the spouses of any of the foregoing, or by any corporation in which the
office holder or a relative (as such term is described above) is a 5% or greater
shareholder, director or general manager or in which he or she has the right to appoint at
least one director or the general manager.
Under
the Israeli Companies Law, all arrangements as to compensation of office holders who are
not directors require approval by the board of directors, and exculpation, insurance and
indemnification of, or an undertaking to, indemnify an office holder who is not a director
requires both board of directors and audit committee approval. The compensation of office
holders who are directors must be approved by our audit committee, board of directors and
shareholders.
Some
transactions, actions and arrangements involving an office holder (or a third party in
which an office holder has an interest) must be approved by the board of directors or as
otherwise provided for in a companys articles of association, however, a transaction
that is adverse to the companys interest may not be approved. In some cases, such a
transaction must be approved by the audit committee and by the board of directors itself,
and under certain circumstances shareholder approval may be required. A director who has a
personal interest in a transaction that is considered at a meeting of the board of
directors or the audit committee may not be present during the board of directors or audit
committee discussions and may not vote on the transaction, unless the transaction is not
an extraordinary transaction or the majority of the members of the board or the audit
committee have a personal interest, as the case may be. In the event the majority of the
members of the board of directors or the audit committee have a personal interest, then
the approval of the general meeting of shareholders is also required.
Disclosure of Personal
Interests of a Controlling Shareholder; Approval of Transactions with Controlling Shareholders
The
disclosure requirements that apply to an office holder also apply to a transaction in
which a controlling shareholder of the company has a personal interest. The Israeli
Companies Law provides that an extraordinary transaction with a controlling shareholder or
an extraordinary transaction with another person in whom the controlling shareholder has a
personal interest or a transaction with a controlling shareholder or his relative
regarding terms of service and employment, must be approved by the audit committee, the
board of directors and shareholders. The shareholder approval for such a transaction must
include at least one-third of the shareholders who have no personal interest in the
transaction who voted on the matter (not including abstentions). The transaction can be
approved by shareholders without this one-third approval if the total shareholdings of
those shareholders who have no personal interest and voted against the transaction do not
represent more than one percent of the voting rights in the company.
61
Under
the Companies Regulations (Relief from Related Party Transactions), 5760-2000, promulgated
under the Israeli Companies Law, as amended, certain extraordinary transactions between a
public company and its controlling shareholder(s) do not require shareholder approval. In
addition, under such regulations, directors compensation and employment arrangements
in a public company do not require the approval of the shareholders if both the audit
committee and the board of directors agree that such arrangements are solely for the
benefit of the company or if the directors compensation does not exceed the maximum
amount of compensation for outside directors determined by applicable regulations. Also,
employment and compensation arrangements for an office holder that is a controlling
shareholder of a public company do not require shareholder approval if certain criteria
are met. The foregoing exemptions from shareholder approval will not apply if one or more
shareholders holding at least 1% of the issued and outstanding share capital of the
company or of the companys voting rights, objects to the use of these exemptions
provided that such objection is submitted to the company in writing not later than
fourteen days from the date of the filing of a report regarding the adoption of such
resolution by the company. If such objection is duly and timely submitted, then the
transaction or compensation arrangement of the directors will require shareholders
approval as detailed above.
In
addition, a private placement of securities that will (i) cause a person to become a
controlling shareholder or (ii) increase the relative holdings of a shareholder that holds
5% or more of the companys outstanding share capital, or (iii) will cause any person
to become, as a result of the issuance, a holder of more than 5% of the companys
outstanding share capital in a private placement in which 20% or more of the
companys outstanding share capital prior to the placement are offered, the payment
for which (in whole or in part) is not in cash or not under market terms, requires
approval by the board of directors and the shareholders of the company.
The
Israeli Companies Law provides that an acquisition of shares in a public company must be
made by means of a tender offer if as a result of the acquisition the purchaser would
become a 25% or greater shareholder of the company. This rule does not apply if there is
already another 25% or greater shareholder of the company. Similarly, the Israeli
Companies Law provides that an acquisition of shares in a public company must be made by
means of a tender offer if as a result of the acquisition the purchaser would hold greater
than a 45% interest in the company, unless there is another shareholder holding more than
a 45% interest in the company. These requirements do not apply if, in general, the
acquisition was made in a private placement that received shareholder approval, (i) was
from a 25% or greater shareholder of the company which resulted in the acquirer becoming a
25% or greater shareholder of the company, if there is not already a 25% or greater
shareholder of the company, or (ii) was from a shareholder holding a 45% interest in the
company which resulted in the acquirer becoming a holder of a 45% interest in the company
if there is not already a 45% or greater shareholder of the company.
If,
as a result of an acquisition of shares, the acquirer will hold more than 90% of a public
companys outstanding shares or a class of shares, the acquisition must be made by
means of a tender offer for all of the outstanding shares or a class of shares. In such
event, if less than 5% of the outstanding shares are not tendered in the tender offer, all
the shares that the acquirer offered to purchase will be transferred to the acquirer. The
Israeli Companies Law provides for appraisal rights if any shareholder files a request in
court within three months following the consummation of a full tender offer. If more than
5% of the outstanding shares are not tendered in the tender offer, then the acquirer may
not acquire shares in the tender offer that will cause his shareholding to exceed 90% of
the outstanding shares.
Exculpation,
Indemnification and Insurance of Directors and Officers
Exculpation of Office
Holders
The
Israeli Companies Law provides that an Israeli company cannot exculpate an office holder
from liability with respect to a breach of his duty of loyalty, but may, if permitted by
its articles of association, exculpate in advance an office holder from his liability to
the company, in whole or in part, with respect to a breach of his or her duty of care.
However, a company may not exculpate in advance a director from his or her liability to
the company with respect to a breach of his duty of care in the event of distributions.
62
Insurance for Office
Holders
The
Israeli Companies Law provides that a company may, if permitted by its articles of
association, enter into a contract to insure an office holder for acts or omissions
performed by the office holder in such capacity for:
|
|
a
breach of his or her duty of care to the company or to another person;
|
|
|
a
breach of his or her duty of loyalty to the company, provided that the office holder
acted in good faith and had reasonable cause to assume that his act would not prejudice
the companys interests; and
|
|
|
a
monetary liability imposed upon the office holder in favor of another person.
|
Indemnification of Office
Holders
The
Israeli Companies Law provides that a company may, if permitted by its articles of
association, indemnify an office holder for acts or omissions performed by the office
holder in such capacity for:
|
|
a
monetary liability imposed on the office holder in favor of another person by any
judgment, including a settlement or an arbitrator's award approved by a
court;
|
|
|
reasonable
litigation expenses, including attorneys fees, actually incurred by the office
holder as a result of an investigation or proceeding instituted against him or her by a
competent authority, provided that such investigation or proceeding concluded without the
filing of an indictment against the office holder or the imposition of any monetary
liability in lieu of criminal proceedings, or concluded without the filing of an
indictment against the office holder and a monetary liability was imposed on the officer
holder in lieu of criminal proceedings with respect to a criminal offense that does not
require proof of criminal intent; and
|
|
|
reasonable
litigation expenses, including attorneys fees, incurred by such office holder or
which were imposed on him by a court, in proceedings the company instituted against the
office holder or that were instituted on the companys behalf or by another person,
or in a criminal charge from which the office holder was acquitted, or in a criminal
proceeding in which the office holder was convicted of a crime which does not require
proof of criminal intent.
|
In
accordance with the Israeli Companies Law, a companys articles of association may
permit the company to:
|
|
undertake
in advance to indemnify an office holder, except that with respect to a financial
liability imposed on the office holder by any judgment, settlement or court-approved
arbitration award, the undertaking must be limited to types of occurrences, which, in the
opinion of the companys board of directors, are, at the time of the undertaking,
foreseeable due to the companys activities and to an amount or standard that the
board of directors has determined is reasonable under the circumstances; and
|
|
|
retroactively
indemnify an office holder of the company.
|
Limitations on
Exculpation, Insurance and Indemnification
The
Israeli Companies Law provides that neither a provision of the articles of association
permitting the company to enter into a contract to insure the liability of an office
holder, nor a provision in the articles of association or a resolution of the board of
directors permitting the indemnification of an office holder, nor a provision in the
articles of association exempting an office holder from duty to the company shall be
valid, where such insurance, indemnification or exemption relates to any of the following:
|
|
a
breach by the office holder of his duty of loyalty, except with respect to insurance
coverage or indemnification if the office holder acted in good faith and had reasonable
grounds to assume that the act would not prejudice the company;
|
63
|
|
a
breach by the office holder of his duty of care if such breach was committed
intentionally or recklessly, unless the breach was committed only negligently;
|
|
|
any
act or omission committed with intent to derive an unlawful personal gain; and
|
|
|
any
fine or forfeiture imposed on the office holder.
|
In
addition, pursuant to the Israeli Companies Law, exemption of, procurement of insurance
coverage for, an undertaking to indemnify or indemnification of an office holder must be
approved by the audit committee and the board of directors and, if such office holder is a
director or a controlling shareholder or a relative of the controlling shareholder, also
by the shareholders general meeting. A special majority at the general meeting is required
if a controlling shareholder is interested in such transaction as an office holder or as a
relative of an office holder, as described above.
Our
articles of association allow us to insure, indemnify and exempt our office holders to the
fullest extent permitted by law, subject to the provisions of the Israeli Companies Law.
We currently maintain directors and officers liability insurance to cover
liabilities of the higher of $10 million or 25% of our equity capital (net worth), per
claim and in the aggregate. In July 2004, our shareholders approved a form of directors
and officers letter of indemnification and exemption for liabilities and expenses incurred
as a result of their acts in their capacity as directors and officers of our company, in
an aggregate amount not to exceed $5.0 million or 25% of our equity capital (net worth).
On
February 8, 2009, following the approval by our board of directors and audit committee,
our shareholders approved the purchase of a tail (runoff) policy insuring the directors an
officers of our company in office prior to the acquisition of the control by Isal Amlat,
as part of Isal Amlats obligations under the purchase agreement. The resolution to
obtain such policy was adopted by a super majority vote, as required for the approval of
transactions with related parties under Israeli law. The policy will be in effect for 7
years, until January 1, 1015. The coverage limit under such policy is 10 million dollars
and the premium for such policy is 115,000 dollars for the term of the policy.
On
March 11, 2009, our board of directors and audit committee approved the purchase of a
directors and officers insurance policy for the directors and officers of our company and
its subsidiaries, Limco and Bental. The coverage limit under the policy is 25 million
dollars and the premium for the insurance term (one year) is 150,000 dollars.
NASDAQ Exemptions for a
Controlled Company
We
are a controlled company within the meaning of NASDAQ Marketplace Rule 5615(c)(2), or Rule
5615(c)(2), because TAT Industries holds more than 50% of our voting shares.
Under
Rule 5615(c)(2), a controlled company is exempt from the following requirements of NASDAQ
Marketplace Rules 5605(b)(1), 5605(d) and 5605(e) that would otherwise require that:
|
|
the
majority of the companys board of directors qualifies as independent directors, as
defined under NASDAQ Marketplace Rules.
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|
|
the
compensation of the chief financial officer and all other executive officers be
determined, or recommended to the board of directors for determination, either by (i) a
majority of the independent directors or (ii) a compensation committee comprised solely
of independent directors.
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|
director
nominees must either be selected or recommended for the board of directors, either by (a)
a majority of independent directors or (b) a nominations committee comprised solely of
independent directors.
|
We
intend to continue to rely on these exemptions provided under Rule 5615(c)(2).
64
As of
December 31, 2008, we and our subsidiaries employed 605 persons, of whom 486 were employed
in manufacturing and quality control, 52 were employed in engineering and research and
development and 67 were employed in administration, sales and marketing. Of such
employees, 321 were located in Israel and 284 were employed by Limco-Piedmont and located
in the United States.
Certain
provisions of the collective bargaining agreements between the Histadrut (General
Federation of Labor in Israel) and the Coordination Bureau of Economic Organizations
(including the Industrialists Association) are applicable to our Israeli employees by
order of the Israeli Ministry of Labor. These provisions concern mainly the length of the
workday, minimum daily wages for professional workers, contributions to a pension fund,
insurance for work-related accidents, procedures for dismissing employees, determination
of severance pay and other conditions of employment. We generally provide our employees
with benefits and working conditions beyond the required minimums. Furthermore, under the
collective bargaining agreements, the wages of most of our employees are linked to the
Consumer Price Index, although the extent of the linkage is limited.
In
addition, Israeli law generally requires severance pay upon the retirement or death of an
employee or termination of employment without due cause. Furthermore, Israeli employees
and employers are required to pay predetermined sums to the National Insurance Institute
which is similar to the United States Social Security Administration. The payments thereto
amount to approximately 12% of wages, with the employee contributing approximately 43% and
the employer approximately 56%.
A
general practice followed by us, although not legally required, is the contribution of
monies on behalf of its senior employees to a fund known as Management
Insurance. This fund provides a combination of savings plan, insurance and severance
pay benefits to the employee, giving the employee a lump sum payment upon retirement and
securing his right to receive severance pay, if legally entitled, upon termination of
employment. The employee contributes an amount equal to approximately 5%-6% of his wages
and the employer contributes an additional amount of approximately 13-1/3% 16% of
such wages.
Beneficial Ownership of
Executive Officers and Director
None
of our directors and executive officers beneficially owns more than 1% of our outstanding
shares.
As
of December 31, 2008, one director held options to purchase an aggregate of 7,500 ordinary
shares at an exercise price of $1.625 per share. The options were issued under our 1999
Stock Purchase Plan and expired on January 19, 2009.
Stock Option Plans
On
August 14, 2008, TATs Board of Directors approved the grant to TATs CEO of
options to purchase 65,477 ordinary shares of TAT which represents 1% of the outstanding
share capital on a fully diluted basis. The options are exercisable in 3 equal portions
vested after 2, 3 and 4 years from May 19, 2008. The fair value of the options was
calculated based on Black & Scholes model and is $191,000.
In
January 1999, TATs Board of Directors adopted TATs 1999 Stock Option Plan, or
the 1999 Plan, under which up to 500,000 ordinary shares were issuable under options
granted to directors and employees. As of December 31, 2008, options to purchase an
aggregate 492,500 ordinary shares had been exercised under the 1999 Plan at an exercise
price of $1.625 per share, out of which 10,000 options were exercised during 2008. As of
December 31, 2008, options to purchase 7,500 ordinary shares at an exercise price of
$1.625 per share were outstanding under the 1999 Plan, all of which expired on January 19,
2009, along with the termination of the 1999 Plan.
65
Item 7.
|
|
Major Shareholders and Related Party Transactions
|
Isal
Amlat, a Tel Aviv Stock Exchange publicly traded company, organized under the laws of the
State of Israel, is the beneficial holder of 70.7% of TATs outstanding shares
(4,632,351 shares), of which 12.0% (786,443 shares) are held directly by it and 58.7%
(3,845,908 shares) are held directly by TATs parent company TAT Industries. TAT
Industries is 79.33% controlled by Isal Amlat. Isal Amlat is 81.65% controlled by KMN
Holdings Ltd., an Israeli company publicly traded on the Tel Aviv Stock Exchange, which is
62.1% controlled by Ron Elroy. No other shareholder of TAT beneficially owns 5% or more of
TATs ordinary shares.
The
following table sets forth certain information as of June 15, 2009, regarding the
beneficial ownership by all shareholders known to us to own beneficially 5% or more of our
ordinary shares:
|
Name
|
Number of
Ordinary Shares
Beneficially Owned(1)
|
Percentage of
Ownership(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Isal Amlat Investments (1993) Ltd. (3)
|
|
|
|
4,632,351
|
|
|
70.7
|
%
|
|
TAT Industries (4)
|
|
|
|
3,845,908
|
|
|
58.7
|
%
|
|
|
|
|
|
(1)
|
Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. Ordinary shares relating to options and warrants
currently exercisable or exercisable within 60 days of the date of this
table are deemed outstanding for computing the percentage of the person
holding such securities but are not deemed outstanding for computing the
percentage of any other person. Except as indicated by footnote, and
subject to community property laws where applicable, the persons named in
the table above have sole voting and investment power with respect to all
shares shown as beneficially owned by them.
|
|
(2)
|
The
percentages shown are based on 6,552,671 ordinary shares issued and
outstanding as of June 15, 2009.
|
|
(3)
|
Includes
786,443 ordinary shares held directly by Isal Amlat and 3,845,908 ordinary
shares held directly by TAT Industries, which is 79.33% controlled by Isal
Amlat. As such, Isal Amlat may be deemed to be the beneficial owner of the
aggregate 4,632,351 ordinary shares held directly by itself and TAT
Industries. Isal Amlat is 81.65% controlled by KMN Holdings Ltd., an
Israeli company publicly traded on the Tel Aviv Stock, which is 62.1%
controlled by Ron Elroy.
|
|
(4)
|
TAT
Industries is 79.33% controlled by Isal Amlat. As such, Isal Amlat may be
deemed to be the beneficial owner of the aggregate 3,845,908 ordinary
shares held directly by TAT Industries. Isal Amlat is 81.65% controlled by
KMN Holdings Ltd., an Israeli company publicly traded on the Tel Aviv
Stock, which is 62.1% controlled by Ron Elroy.
|
Significant Changes in
the Ownership of Major Shareholders
On December
19, 2007, the controlling interest in TAT Industries, our controlling shareholder, was
sold. Mr. Shlomo Ostersetzer, the former Chairman of our Board of Directors and our
former President, and Mr. Dov Zeelim, the former Vice Chairman of our Board of Directors
and our former Chief Executive Officer, directly and through companies wholly owned by
them, sold an aggregate of 1,345,601 ordinary shares of TAT Industries to Isal
Amlat. On December 24, 2007 Isal Amlat purchased an additional amount of 361,642
ordinary shares of TAT Industries from a third party, and as of December 24, 2007,
Isal Amlat held an aggregate of 1,707,243 ordinary shares of TAT Industries comprising
69.29% of its then outstanding shares. According to the agreement between Isal Amlat and
Mr. Zeelim, as amended on January 31, 2008, Isal Amlat purchased from Mr. Dov Zeelim an
additional amount of 142,855 ordinary shares of TAT Industries and provided Mr. Zeelim
with a put option with respect to additional 102,856 ordinary shares of TAT Industries
then held by Mr. Zeelim that was exercisable after January 1, 2010. Pursuant to an
agreement between Isal Amlat and Mr. Zeelim entered into in May 2008 in connection with
Mr. Zeelims resignation from the office of Chief Executive Officer of our company,
Mr. Zeelim exercised his put option on June 12, 2008 and the 102,856 ordinary shares
subject to the option were purchased by Isal Amlat. During years 2007 and 2008 Isal
Amlet purchased from other third parties additional 1,859 ordinary shares of TAT
Industries and currently controls 79.33% of Tat Industries.
66
On
December 19, 2007, Isal Amlat purchased 600,000 ordinary shares or 9.2% of our then
outstanding ordinary shares, from FIMI Opportunity Fund. The agreement between Isal Amlat
and FIMI also provides for a mutual call and put option exercisable after one year with
respect to the remaining 241,443 ordinary shares of our company (approximately 3.7% of our
outstanding shares) beneficially held by FIMI. On December 20, 2007, Isal Amlat purchased
45,000 of our ordinary shares from Mr. Dov Zeelim, the former Vice Chairman of our Board
of Directors and our former Chief Executive Officer. On July 17, 2008 Isal Amlat and FIMI
amended the terms of their agreement to provide that the put and call options provided for
under the agreement, which were exercisable for one year, will be divided into two
tranches. Accordingly, 141,443 of our ordinary shares were purchased by Isal Amlat in
December 2008 at a price per share of 19.343 dollars and with respect to the remaining
100,000 of our ordinary shares subject to the option, or the second trench shares, FIMI
received a put option enabling it to require Isal Amlat to purchase such shares during a
period of one month, commencing December 20, 2009. It was further agreed that if FIMI does
not exercise such put option, then Isal Amlat has a call option with respect to the second
trench shares, enabling it to purchase such shares during a period of one month,
commencing on the termination of the put option. The second trench shares will be
purchased at a price per share of 19.343 dollars plus interest, as set forth in the
agreement between the parties. Isal Amlat is currently the beneficial holder of 70.69% of
our outstanding shares, of which 12.0% of such shares are held directly by it and 58.69%
of such shares are held directly by our parent company Tat Industries.
In
March 2008 and in September 2008, the board of directors of our parent company, Tat
Industries, authorized the purchase by Tat Industries of up to NIS 20 million
(approximately $5.8 million) and NIS 10 million (approximately $2.9 million),
respectively, of our ordinary shares, effective immediately through July 2008 and December
2008, respectively. The timing and amount of any of our ordinary shares purchased will be
determined by its management based on its evaluation of market conditions and other
factors. Tat Industries purchased ordinary shares of our company for an aggregate purchase
price of 6.5 million dollars under such purchase plans, and its holdings in our company
are currently 58.69%.
On
December 24, 2008, the companys board of directors authorized the repurchase by the
company of up to three million dollars of the companys ordinary shares. The Board
approval is effective through December 31, 2009. The timing and amount of any share
purchases will be determined by the companys management from time to time based on
its evaluation of market conditions and other factors. The repurchase program will be
funded from the companys working capital and may be suspended or discontinued at any
time. We have not repurchased any shares pursuant to such approval.
On
March 11, 2009, TATs Board of Directors adopted a stock repurchase plan under Rule
10b5-1 of the Securities Exchange Act of 1934. This plan replaced the Board of
Directors authorization to repurchase shares announced on December 24, 2008, which
was terminated. On March 26, 2009 this 10b5-1 plan was also terminated, with 4,650 shares
having been purchased.
Major Shareholders
Voting Rights
Our
major shareholders do not have different voting rights.
Record Holders
Based
on a review of the information provided to us by our transfer agent, as of June 15, 2009,
there were 49 holders of record of our ordinary shares, of which 11 record holders holding
approximately 2.0% of our ordinary shares had registered addresses in the United States.
These numbers are not representative of the number of beneficial holders of our shares nor
is it representative of where such beneficial holders reside since many of these ordinary
shares were held of record by brokers or other nominees including CEDE & Co., the
nominee for the Depositary Trust Company (the central depositary for the U.S. brokerage
community), which held approximately 55.6% of our outstanding ordinary shares as of such
date.
67
B.
|
Related
Party Transactions
|
Management and Services
Agreement
In
February 2000, TAT entered into an agreement with TAT Industries, TATS controlling
shareholder, to purchase operations of TAT Industries relating to the manufacture of
aviation accessories and the lease of certain real estate and buildings. Pursuant to the
terms of this agreement, all of the employees of TAT Industries were transferred to TAT us
effective January 1, 2000, without any change in the conditions of their employment. TAT
Industries pays TAT $50,000 per year for administrative and accounting personnel and
secretarial staff, who served as employees of TAT Industries before they were transferred
to TAT and who continue to provide such services.
In
addition, pursuant to the terms of the agreement, TAT entered into a lease agreement,
pursuant to which TAT leased from TAT Industries, effective as of January 1, 2000, an area
of approximately 344,000 square feet, including 90,000 square feet of manufacturing,
office and storage space, for a period of 24 years and eleven months. In consideration for
the lease agreement, TAT agreed to pay TAT Industries annual rental fee of $300,000, with
an additional incremental payment of 2% per year, such rental fee is subject to
revaluation every fifth year. In 2005, the rental fee was revaluated by a real estate
appraiser, and as a result the base fee was increased to $310,000 per year with an
additional incremental payment of 2% per year. The rental fee will be revaluated again in
2010.
Management Agreement with
ISAL
On
February 8, 2009, following the approval of TATs Board of Directors and audit
committee, TATs shareholders approved the entry by the company into a management
agreement with TATs controlling shareholder, Isal Amlat, by the special majority
required by Israeli law. Pursuant to the management agreement, in consideration of the
management services provided by Isal Amlat, TAT will pay to Isal Amlat an amount of
$100,000 plus VAT per fiscal quarter, commencing retroactively from October 1, 2008. The
agreement will be in effect for 4 years unless earlier terminated by either party by a 4
month prior notice. Under the agreement, the scope of services are subject to annual
review by the Board of Directors and audit committee and upon their determination that a
material change has occurred that requires the update of the agreement, the company will
take all actions to obtain all the requisite approvals to such amendment.
Management Agreement with
Limco
On
February 25, 2009, Limcos Board of Directors and Audit Committee approved an
agreement providing for the payment by Limco of an annual management fees to TAT in an
amount of $200,000 commencing January 2009.
Management Agreement with
Bental
On
December 29, 2008, Bental Industries Board of Directors approved the payment of a
management fee to its stockholders in aggregate amount $120,000, as follows: $62,400 will
be paid to TAT and $57,600 will be paid to Bental Investments in consideration of
Management Services provided to Bental Industries by its shareholders or on their
behalf during fiscal year 2008.
Other Transactions
TAT
Industries and TAT are reporting to the Value Added Tax Authorities on a consolidated
basis. The balance with TAT Industries as of December 31, 2008 and 2007, at the amount of
$383 and $576, respectively, mainly consists of Value Added Tax refund, is linked to the
Israeli Consumer Price Index.
On
March 26, 2007, TAT entered into an agreement with Limco, with respect to the terms of
purchase by Limco from TAT of cores of heat exchangers. The agreement determines the price
for the different cores and includes a price adjustment mechanism. The term of the
agreement is 10 years during which TAT will be Limcos sole supplier of such
products.
68
TAT
has commercial relationships with certain companies that are controlled by KMN Holdings,
TATs indirect controlling shareholder: KMN Trades and Metals, Ika Laboratories Ltd.,
Alexandrovitzh Ltd. and Hagail Industries Ltd. During fiscal year 2008, TAT purchased from
such companies raw materials and services in an aggregate amount of $80,000, all in arms
length transactions.
Other Relationships
Dr.
Shmuel Fledel, TATs Chief Executive Officer and Mr. Yaron Shalem,
TATs Chief Financial Officer, also serve in the same positions in TAT
Industries.
Dr.
Shmuel Fledel, TATs Chief Executive Officer, serves as the Chairman of
the Board of Directors of Limco. Mr. Giora Inbar, the Chairman of TATs
Board of Directors and Dr. Avraham Ortal, a member of TATs Board of
Directors, also serve on the Board of Directors of Limco.
C.
|
Interests
of Experts and Counsel
|
Not
applicable.
Item 8.
|
|
Financial Information
|
A.
|
Consolidated
Statements and Other Financial Information
|
See
the consolidated financial statements, including the notes thereto, included in Item 18.
Legal Proceedings
We
are not presently involved in any material legal proceedings. However during the ordinary
course of business, we are, from time to time, threatened with, or may become a party to
legal actions and other proceedings.
On
May 19, 2009 an amended petition was filed in the District Court of Tulsa County, State of
Oklahoma captioned Chris Gassen, individually and on behalf of all others similarly
situated, Plaintiff v. Shmuel Fledel, Jacob Gesthalter, Michael Gorin, Giora Inbar,
Avraham Ortal, Eran Goren, Limco, LIMC Acquisition Company and TAT, Defendants. The
action, which purports to be on behalf of a class comprised of the public stockholders of
Limco, seeks relief against TAT, Limco and Limcos Directors for alleged breaches of
fiduciary duty and other violations of state law in connection with the merger. Plaintiff
claims, among other things, that the defendants are attempting to sell Limco by means of
an unfair process and for an unfair price and that defendants have failed to disclose all
material information concerning the merger. Plaintiff is seeking to enjoin the
consummation of the merger, monetary damages, and an award of costs, including
attorneys fees. We believe that the action is without merit and intends to
vigorously defend the claims.
Limco
is currently engaged in a contract dispute with one of their suppliers. Limco believes
that the dispute will be resolved as a commercial basis. However, the inability to
amicably resolve such dispute could result in litigation, which could have a material
effect on Limcos business and financial condition.
Dividend Distribution
Policy
On
April 8, 2009, we paid a cash dividend to its stockholders of approximately NIS2.29 per
ordinary share (approximately $.55 per ordinary share). Our Board of Directors has no
present intention of paying additional cash dividends in the foreseeable future. The
payment of additional dividends will be contingent upon our revenues and earnings, capital
requirements and general financial condition.
69
The
Israel Companies Law also restricts our ability to declare dividends. We can only
distribute dividends from profits (as defined in the law), provided that there is no
reasonable suspicion that the dividend distribution will prevent us from meeting our
existing and future expected obligations as they come due.
Since
the date of the annual consolidated financial statements included in this annual report,
no significant change has occurred.
Item 9.
|
|
The Offer and Listing
|
A.
|
Offer
and Listing Details
|
Annual Stock Information
The
following table sets forth, for each of the years indicated, the high and low sales prices
of our ordinary shares on the NASDAQ Capital Market and the TASE :
|
NASDAQ Capital Market
|
Tel Aviv Stock Exchange
|
|
High
|
Low
|
High
|
Low
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended December 31, 2004
|
|
|
|
9.80
|
|
|
6.21
|
|
|
-
|
|
|
-
|
|
Fiscal Year Ended December 31, 2005
|
|
|
|
9.35
|
|
|
5.25
|
|
|
NIS 35.50
|
|
|
NIS 29.70
|
|
Fiscal Year Ended December 31, 2006
|
|
|
|
19.52
|
|
|
5.92
|
|
|
82.10
|
|
|
30.25
|
|
Fiscal Year Ended December 31, 2007
|
|
|
|
28.18
|
|
|
11.37
|
|
|
116.70
|
|
|
47.68
|
|
Fiscal Year Ended December 31, 2008
|
|
|
|
12.24
|
|
|
3.62
|
|
|
53.00
|
|
|
15.52
|
|
|
|
|
|
|
Quarterly Stock
Information
The
following table sets forth, for each of the full financial quarters in the two most recent
full financial years and any subsequent period, the high and low sales prices of our
ordinary shares on the NASDAQ Capital Market and the TASE:
|
NASDAQ Capital Market
|
Tel Aviv Stock Exchange
|
|
High
|
Low
|
High
|
Low
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
|
28.18
|
|
|
16.60
|
|
|
116.70
|
|
|
70.94
|
|
Second Quarter
|
|
|
|
21.93
|
|
|
15.60
|
|
|
91.11
|
|
|
62.74
|
|
Third Quarter
|
|
|
|
21.95
|
|
|
11.37
|
|
|
94.82
|
|
|
47.68
|
|
Fourth Quarter
|
|
|
|
16.10
|
|
|
13.13
|
|
|
64.24
|
|
|
50.01
|
|
|
|
|
2008
|
|
|
First Quarter
|
|
|
|
12.24
|
|
|
6.61
|
|
|
53.00
|
|
|
26.01
|
|
Second Quarter
|
|
|
|
8.60
|
|
|
4.95
|
|
|
34.94
|
|
|
17.71
|
|
Third Quarter
|
|
|
|
7.37
|
|
|
4.76
|
|
|
27.75
|
|
|
17.08
|
|
Fourth Quarter
|
|
|
|
7.01
|
|
|
3.62
|
|
|
27.50
|
|
|
15.52
|
|
|
|
|
2009
|
|
|
First Quarter
|
|
|
|
5.85
|
|
|
3.95
|
|
|
25.31
|
|
|
16.53
|
|
|
|
|
|
|
70
Monthly Stock Information
The
following table sets forth, for the most recent six months, the high and low sales prices
of our ordinary shares on the NASDAQ Capital Market and the TASE:
|
NASDAQ Capital Market
|
Tel Aviv Stock Exchange
|
|
High
|
Low
|
High
|
Low
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 2008
|
|
|
|
4.42
|
|
|
3.62
|
|
|
19.32
|
|
|
15.52
|
|
January 2009
|
|
|
|
4.81
|
|
|
3.99
|
|
|
20.49
|
|
|
17.75
|
|
February 2009
|
|
|
|
5.11
|
|
|
4.22
|
|
|
21.73
|
|
|
18.45
|
|
March 2009
|
|
|
|
5.85
|
|
|
3.95
|
|
|
25.31
|
|
|
16.53
|
|
April 2009
|
|
|
|
5.48
|
|
|
4.74
|
|
|
23.31
|
|
|
20.97
|
|
May 2009
|
|
|
|
7.15
|
|
|
5.50
|
|
|
28.96
|
|
|
23.15
|
|
|
|
|
|
|
Not
applicable.
Our
ordinary shares traded on the NASDAQ Global Market (then known as the NASDAQ National
Market) under the symbol TATTF from March 1987 until July 1998, when the
listing of such shares was transferred to the NASDAQ Capital Market. On August 16, 2005,
we listed our shares for trade on the TASE as a dual listed company. On June 24, 2009, the
listing of the ordinary shares of TAT was transferred back to the NASDAQ Global Market.
Not
applicable.
Not
applicable.
Not
applicable.
Item 10.
|
|
Additional Information
|
Not
applicable.
B.
|
Memorandum
and Articles of Association
|
Set
out below is a description of certain provisions of our Memorandum of Association,
Articles of Association and of the Israeli Companies Law related to such provisions. This
description is only a summary and does not purport to be complete and is qualified by
reference to the full text of the Memorandum of Association and Articles of Association,
which are incorporated by reference as exhibits to this Annual Report, and to Israeli law.
71
Purposes and Objects of
the Company
We
are a public company registered with the Israeli Companies Registry and have been assigned
company number 52-0035791. Section 2 of our memorandum of association provides that we
were established for the purpose of engaging in the business of providing services of
planning, development, consultation and instruction in the electronics field. In addition,
the purpose of our company is to perform various corporate activities permissible under
Israeli law.
On
February 1, 2000, the Israeli Companies Law came into effect and superseded most of the
provisions of the Israeli Companies Ordinance (New Version), 5743-1983, except for certain
provisions which relate to liens, bankruptcy, dissolution and liquidation of companies.
Under the Israeli Companies Law, various provisions, some of which are detailed below,
overrule the current provisions of our articles of association.
The Powers of the
Directors
Under
the provisions of the Israeli Companies Law and our Articles of Association, a director
cannot participate in a meeting nor vote on a proposal, arrangement or contract in which
he or she is materially interested. In addition, our directors cannot vote compensation to
themselves or any members of their body without the approval of our audit committee and
our shareholders at a general meeting. See Item 6.C. Directors, Senior Management
and Employees Board Practices Approval of Related Party Transactions Under
Israeli Law.
The
authority of our directors to enter into borrowing arrangements on our behalf is not
limited, except in the same manner as any other transaction by us.
Our
articles of association do not impose any mandatory retirement or age-limit requirements
on our directors and our directors are not required to own shares in our company in order
to qualify to serve as directors.
Rights Attached to Shares
Our
authorized share capital consists of 10,000,000 ordinary shares of a nominal value of NIS
0.90 each. All outstanding ordinary shares are validly issued, fully paid and
non-assessable.
The
rights attached to the ordinary shares are as follows:
Dividend
rights
.
Holders of our ordinary shares are entitled to the full amount of
any cash or share dividend subsequently declared. The board of directors may declare
interim dividends and propose the final dividend with respect to any fiscal year only out
of the retained earnings, in accordance with the provisions of the Israeli Companies Law.
See Item 8.A. Financial Information Consolidated and Other Financial
Information Dividend Distribution Policy. If after one year a dividend has
been declared and it is still unclaimed, the board of directors is entitled to invest or
utilize the unclaimed amount of dividend in any manner to our benefit until it is claimed.
We are not obligated to pay interest or linkage differentials on an unclaimed dividend.
Voting
rights
.
Holders of ordinary shares have one vote for each ordinary share
held on all matters submitted to a vote of shareholders. Such voting rights may be
affected by the grant of any special voting rights to the holders of a class of shares
with preferential rights that may be authorized in the future.
The
quorum required for any meeting of shareholders consists of at least two shareholders
present in person or represented by proxy who hold or represent, in the aggregate, at
least one third of the voting rights of the issued share capital. A meeting adjourned for
lack of a quorum generally is adjourned to the same day in the following week at the same
time and place or any time and place as the directors designate in a notice to the
shareholders. At the reconvened meeting, the required quorum consists of any two members
present in person or by proxy.
Under
our Articles of Association, any resolution, including resolutions for the declaration of
dividends, amending our memorandum of association or articles of association, approving
any change in capitalization, winding-up, authorization of a class of shares with special
rights, or other changes as specified in our Articles of Association, requires approval of
the holders of a majority of the voting rights represented at the meeting, in person, by
proxy or by written ballot, and voting thereon.
72
Pursuant
to our articles of association, our directors (other than outside directors) are elected
at our annual general meeting of shareholders by a vote of the holders of a majority of
the voting power represented and voting at such meeting and hold office until the next
annual general meeting of shareholders and until their successors have been elected. All
the members of our Board of Directors (except the outside directors) may be reelected upon
completion of their term of office. For information regarding the election of outside
directors, see Item 6C. Directors, Senior Management and Employees Board
Practices Election of Directors.
Rights
to share in our companys profits
.
Our shareholders have the right to
share in our profits distributed as a dividend and any other permitted distribution. See
this Item 10B. Additional Information Memorandum and Articles of Association
Rights Attached to Shares Dividend rights.
Rights
to share in surplus in the event of liquidation
.
In the event of our
liquidation, after satisfaction of liabilities to creditors, our assets will be
distributed to the holders of ordinary shares in proportion to the nominal value of their
holdings. This right may be affected by the grant of preferential dividend or distribution
rights to the holders of a class of shares with preferential rights that may be authorized
in the future.
Liability
to capital calls by our company
.
Under our memorandum of association and
the Israeli Companies Law, the liability of our shareholders is limited to the par value
of the shares held by them.
Limitations
on any existing or prospective major shareholder
. See Item 6.C.
Directors and Senior Management Board Practices Approval of Related
Party Transactions Under Israeli Law.
Changing Rights Attached
to Shares
According
to our Articles of Association, in order to change the rights attached to any class of
shares, unless otherwise provided by the terms of the class, such change must be adopted
by a general meeting of the shareholders and by a separate general meeting of the holders
of the affected class with a majority of the voting rights represented at the meeting, in
person, by proxy or by written ballot, and voting thereon.
Annual and Extraordinary
Meetings
Under
the Israeli Companies Law a company must convene an annual meeting of shareholders at
least once every calendar year and within fifteen months of the last annual meeting.
Depending on the matter to be voted upon, notice of at least 21 days or 35 days prior to
the date of the meeting is required. Our board of directors may, in its discretion,
convene additional meetings as special general meetings. With respect to
special general meetings notice of at least 35 days prior to the date of the meeting
is required. In addition, the board must convene a special general meeting upon the demand
of two of the directors, 25% of the nominated directors, one or more shareholders having
at least 5% of the outstanding share capital and at least 1% of the voting power in the
company, or one or more shareholders having at least 5% of the voting power in the
company. See Item 10B. Additional Information Memorandum and Articles of
Association Rights Attached to Shares Voting Rights.
Limitations on the
Rights to Own Securities in Our Company
Neither
our memorandum of association or our articles of association nor the laws of the State of
Israel restrict in any way the ownership or voting of shares by non-residents, except with
respect to subjects of countries which are in a state of war with Israel.
73
Provisions Restricting
Change in Control of Our Company
The
Israeli Companies Law requires that mergers between Israeli companies be approved by the
board of directors and general meeting of shareholders of both parties to the transaction.
The approval of the board of directors of both companies is subject to such boards
confirmations that there is no reasonable doubt that after the merger the surviving
company will be able to fulfill its obligations towards its creditors. Each company must
notify its creditors about the contemplated merger. Under the Israeli Companies Law, our
Articles of Association are deemed to include a requirement that such merger be approved
by an extraordinary resolution of the shareholders, as explained above. The approval of
the merger by the general meetings of shareholders of the companies is also subject to
additional approval requirements as specified in the Israeli Companies Law and regulations
promulgated there under. See also Item 6.C. Directors, Senior Management and
Employees Board Practices Approval of Related Party Transactions Under
Israeli Law.
Disclosure of
Shareholders Ownership
The
Israeli Securities Law, 5728-1968 and regulations promulgated thereunder contain various
provisions regarding the ownership threshold above which shareholders must disclose their
share ownership. However, these provisions do not apply to companies, such as ours, whose
shares are publicly traded in Israel as well on the NASDAQ Capital Market. We are required
pursuant to the Israeli Securities Law and the regulations promulgated thereunder to
submit to the Israeli Companies Registrar, the Israeli Securities Authority and the TASE,
among other things, all information that we receive from our shareholders regarding their
shareholdings in our company, provided that such information was published or is required
to be published under applicable foreign law.
Changes in Our Capital
Changes
in our capital are subject to the approval of the shareholders at a general meeting by a
majority of the voting rights represented at the meeting, in person, by proxy or by
written ballot, and voting thereon.
There
are no restrictions on the rights of nonresident or foreign shareholders to hold or vote
the Ordinary Shares.
On
August 18, 2008, following a series of transactions explained below, TAT acquired 70%
control in Bental:
On
March 27, 2008, TAT entered into an agreement with Bental Investments Cooperative
Agricultural Society Ltd., (Bental Investments), to purchase from it 27% of
the outstanding shares of Bental, together with a call and put option for another 18% of
the outstanding shares of Bental held by Bental Investments. The call option, which was
exercised on March 30, 2009, was for a period of four years commencing January 1, 2009 for
an exercise price $2,250,000, and the put option was for a period of two years commencing
January 1, 2011 for $2,138,000 (both subject to certain exchange rate adjustments). The
exercise prices carried interest of 2% per annum.
On
April 15, 2008, TAT entered into an agreement to purchase additional 10% of the
outstanding shares of Bental from Mivtach Shamir Investments (1993) Ltd.,
(Mivtach), subject to the completion of the acquisition from Bental
Investment.
Following
approvals received, the foregoing transactions with Bental Investments and Mivtach were
consummated on May 21, 2008, as a result of which TAT paid in cash a total of $5,144,000.
On
August 18, 2008, following the approval of the shareholders meeting of TAT Industries (the
parent company), TAT acquired additional 15% shareholding in Bental from TAT Industries,
its controlling shareholder, for a cash consideration of $1,893,000, which was based on
the price agreed for the shares in the above transactions.
The
agreement with Bental Investment provides also for the payment of additional consideration
by TAT, to be paid in the event that during the three year period following the closing of
the transaction TAT will consummate an exit, as such term is defined in the
agreement, Bental Investments will be entitled to additional consideration for the shares
and call option shares (if purchased) equal to a certain percentage of the difference
between the price per share that TAT paid for such shares and the price per share paid in
the exit transaction (30% if the exit is within one year of the closing, 20% if the exit
is within two years of the closing and 10% if the exit is within three years of the
closing).
74
On
April 3, 2009 we entered into an Agreement and Plan of Merger with Limco and LIMC
Acquisition Company, a Delaware corporation and our wholly-owned subsidiary, pursuant to
which we will acquire all of the publicly held shares of common stock of Limco pursuant to
a stock for stock merger. Under the terms of the merger agreement, Limcos
stockholders will receive one half of an ordinary share of TAT for each share of Limco
common stock they own. Following the merger, Limco will become our wholly owned
subsidiary. We anticipate the merger to be consummated in the third quarter of 2009.
Israeli
law and regulations do not impose any material foreign exchange restrictions on
non-Israeli holders of our ordinary shares. In May 1998, a new general permit
was issued under the Israeli Currency Control Law, 1978, which removed most of the
restrictions that previously existed under such law, and enabled Israeli citizens to
freely invest outside of Israel and freely convert Israeli currency into non-Israeli
currencies.
Non-residents
of Israel who purchase our ordinary shares will be able to convert dividends, if any,
thereon, and any amounts payable upon our dissolution, liquidation or winding up, as well
as the proceeds of any sale in Israel of our ordinary shares to an Israeli resident, into
freely repatriable dollars, at the exchange rate prevailing at the time of conversion,
provided that the Israeli income tax has been withheld (or paid) with respect to such
amounts or an exemption has been obtained.
The
following is a discussion of Israeli and United States tax consequences material to our
shareholders. To the extent that the discussion is based on new tax legislation which has
not been subject to judicial or administrative interpretation, the views expressed in the
discussion might not be accepted by the tax authorities in question. The discussion is not
intended, and should not be construed, as legal or professional tax advice and does not
exhaust all possible tax considerations.
You
are urged to consult your own tax advisor as to the Israeli, United States and other tax
consequences of the purchase, ownership and disposition of our ordinary shares, including,
in particular, the effect of any non-Israeli, state or local taxes.
ISRAELI TAX
CONSIDERATIONS
The
following is a summary of the principal Israeli tax laws applicable to us, of the Israeli
Government programs from which we benefit and of the Income Tax Law (Inflationary
Adjustments), 1985. This section also contains a discussion of material Israeli tax
consequences to our shareholders who are not residents or citizens of Israel. This summary
does not discuss all aspects of Israeli tax law that may be relevant to a particular
investor in light of his or her personal investment circumstances, or to some types of
investors subject to special treatment under Israeli law. Examples of investors subject to
special treatment under Israeli law include residents of Israel, traders in securities, or
persons who own, directly or indirectly, 10% or more of our outstanding voting capital,
all of whom are subject to special tax regimes not covered in this discussion. Some parts
of this discussion are based on new tax legislation that has not been subject to judicial
or administrative interpretation. The discussion should not be construed as legal or
professional tax advice and does not cover all possible tax consequences.
General Corporate Tax
Structure
Israeli
companies were generally subject to corporate tax at the rate of 29% in 2007, which was
reduced to 27% in 2008, and will be further reduced to 26% in 2009 and 25% in 2010 and
thereafter. However, the rate is effectively reduced for income derived from an approved
enterprise and beneficiary enterprise, as discussed below.
75
Tax Benefits under the Law for the
Encouragement of Capital Investments, 1959
We
have one capital investment program that has been granted approved enterprise
status under the Law for the Encouragement of Capital Investments, 1959, commonly referred
to as the Investment Law, and one program that qualify as a beneficiary
enterprise pursuant to an amendment to the Investment Law that came into effect on
April 1, 2005.
Prior
to the April 2005 amendment, the Investment Law provided that capital investments in a
production facility (or other eligible assets) may be designated as an approved enterprise
upon prior approval from the Investment Center of the Israel Ministry of Industry, Trade
and Labor, or the Investment Center. Each certificate of approval for an approved
enterprise relates to a specific investment program, delineated both by the financial
scope of the investment and by the physical characteristics of the facility or the asset.
On
April 1, 2005, an amendment to the Investment Law came into effect, which revised the
criteria for investments qualified to receive tax benefits. An eligible investment program
under the amendment will qualify for benefits as a beneficiary enterprise (rather than the
previous terminology of approved enterprise). Among other things, the April 2005 amendment
provides tax benefits to both local and foreign investors. Companies that meet the
specified criteria will receive the tax benefits without need for prior approval and
instead, a company may claim the tax benefits offered by the Investment Law directly in
its tax returns.
The
period of tax benefits for a new beneficiary enterprise commences in the year that is the
later of: (i) the year in which taxable income is first generated by a company, or (ii) a
year selected by the company for commencement, on the condition that the company meets
certain provisions provided by the Investment Law. The amendment does not apply to
investment programs approved prior to December 31, 2004 and applies only to new investment
programs. We began to generate income under the provision of the new amendment as of the
beginning of 2006.
A
company that owns an approved enterprise and/or beneficiary enterprise is eligible for
governmental grants, but may elect to receive an alternative package comprised of tax
benefits, referred to as the alternative track. Under the alternative track, a
companys undistributed income derived from an approved enterprise and beneficiary
enterprise is exempt from corporate tax for an initial period (two to ten years, depending
on the geographic location of the approved enterprise and beneficiary enterprise within
Israel). The exemption begins in the first year that the company realizes taxable income
from the approved enterprise.
After
expiration of the initial tax exemption period, the company is eligible for a reduced
corporate tax rate of 10% to 25% for the following five to eight years, depending on the
extent of foreign investment in the company (as shown in the table below). The benefits
period is limited to 12 years from completion of the investment under the approved plan or
14 years from the date of the approval, whichever is earlier. A company in which more than
25% of the shareholders are non-residents of Israel, defined under the Investment Law as a
Foreign Investors Company, may be eligible for benefits for an extended period of up to
ten years.
The
tax benefits relate only to taxable income attributable to the specific approved
enterprise and/or beneficiary enterprise. To the extent we have more than one approved
enterprise and/or beneficiary enterprise or only a portion of our capital investments are
derived from approved or beneficiary enterprises, our effective tax rate will be the
result of a weighted combination of the applicable rates.
Percent of Foreign Ownership
|
Rate of
Reduced Tax
|
Reduced Tax
Period
|
Tax Exemption
Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0-25%
|
25%
|
5 years
|
2 years
|
25-49%
|
25%
|
8 years
|
2 years
|
49-74%
|
20%
|
8 years
|
2 years
|
74-90%
|
15%
|
8 years
|
2 years
|
90-100%
|
10%
|
8 years
|
2 years
|
|
|
|
|
76
If
a company distributes dividends from tax-exempt approved enterprise and/or beneficiary
enterprise income, the company will be taxed on the otherwise exempt income at the same
reduced corporate tax rate that applies to it after the initial exemption period.
Distribution of dividends derived from approved enterprise and beneficiary enterprise
income that was taxed at reduced rates, but not tax exempt, does not result in additional
tax consequences to the company. Shareholders who receive dividends derived from approved
enterprise and beneficiary enterprise income are generally taxed at a rate of 15%, which
is withheld and paid by the company paying the dividend, if the dividend is distributed
during the benefits period or within the following 12 years (but the 12-year limitation
does not apply to a Foreign Investors Company).
The
benefits available to an approved enterprise and beneficiary enterprise are conditioned
upon terms stipulated in the Investment Law and the related regulations (which include
making specified investments in property and equipment, and financing a percentage of
these investments with share capital), and, for an approved enterprise, the conditions
contained in the certificate of approval from the Investment Center. If we do not fulfill
these conditions, in whole or in part, the benefits can be cancelled and we may be
required to refund the amount of the benefits, linked to the Israeli consumer price index
plus interest. We believe that our approved enterprise and beneficiary enterprise programs
currently operate in compliance with all applicable conditions and criteria, but we cannot
assure you that they will continue to do so.
We
have derived, and expect to continue to derive, a substantial portion of our operating
income from our approved enterprise and beneficiary enterprise facilities. We are
therefore eligible for a tax exemption for a limited period on undistributed approved
enterprise and beneficiary enterprise income, and an additional subsequent period of
reduced corporate tax rates ranging between 10% and 25%, depending on the level of foreign
ownership of our shares. The tax benefits attributable to our current approved enterprise
and beneficiary enterprise are scheduled to expire in phases between 2009 and 2017. We
intend to reinvest the entire amount of our tax-exempt income and not to distribute this
income as a dividend.
Tax Benefits and Grants
for Research and Development
Israeli
tax law allows, under specific conditions, a tax deduction in the year incurred for
expenditures, including capital expenditures, relating to scientific research and
development projects, if the expenditures are approved by the relevant Israeli government
ministry, determined by the field of research, and the research and development is for the
promotion of the company and is carried out by or on behalf of the company seeking such
deduction. Expenditures not so approved are deductible over a three-year period. However,
expenditures from proceeds made available to us through government grants are not
deductible according to Israeli law.
Tax Benefits Under the
Law for the Encouragement of Industry (Taxes), 1969
According
to the Law for the Encouragement of Industry (Taxes), 1969, or the Industry Encouragement
Law, an Industrial Company is a company resident in Israel, at least 90% of the income of
which, in a given tax year, determined in Israeli currency (exclusive of income from some
government loans, capital gains, interest and dividends), is derived from an industrial
enterprise owned by it. An industrial enterprise is defined as an enterprise
whose major activity in a given tax year is industrial production activity.
Under
the Industry Encouragement Law, Industrial Companies are entitled to the following
preferred corporate tax benefits:
|
|
amortization
of purchases of acquired technology and patents over an eight-year period for
tax purposes;
|
|
|
amortization
of specified expenses incurred in connection with a public issuance of
securities over a three-year period for tax purposes;
|
|
|
right
to elect, under specified conditions, to file a consolidated tax return with
additional related Israeli Industrial Companies; and
|
|
|
accelerated
depreciation rates on equipment and buildings.
|
77
Eligibility
for benefits under the Industry Encouragement Law is not subject to receipt of prior
approval from any governmental authority.
We
cannot assure you that we will continue to qualify as an Industrial Company or that the
benefits described above will be available to us in the future.
Special Provisions
Relating to Taxation under Inflationary Conditions
The
Income Tax Law (Inflationary Adjustments), 1985, referred to as the Inflationary
Adjustments Law, which attempts to overcome the problems presented to a traditional tax
system by an economy undergoing rapid inflation. The Inflationary Adjustments Law is
highly complex.
On
February 26, 2008, the Israeli Parliament (the Knesset) enacted the Income Tax Law
(Inflationary Adjustments) (Amendment No. 20) (Restriction of Effective Period), 2008,
which we refer to as the Inflationary Adjustments Amendment. In accordance with the
Inflationary Adjustments Amendment, the effective period of the Inflationary Adjustments
Law will cease at the end of the 2007 tax year and as of the 2008 tax year the provisions
of the law shall no longer apply, other than the transitional provisions intended at
preventing distortions in the tax calculations. In accordance with the Inflationary
Adjustments Amendment, commencing the 2008 tax year, income for tax purposes will no
longer be adjusted to a real (net of inflation) measurement basis. Furthermore, the
depreciation of inflation immune assets and carried forward tax losses will no longer be
linked to the Israeli consumer price index.
Taxation of Dividends
Paid on our Ordinary Shares
Taxation of Israeli
Shareholders
Israeli
resident individuals are generally subject to Israeli income tax on the receipt of
dividends paid on our ordinary shares, other than bonus shares (share dividends) or stock
dividends, at the rate of 20%, or 25% for a shareholder that is considered a material
shareholder (within the meaning of the Israeli Income Tax Ordinance) at any time during
the 12-month period preceding such distribution. Dividends paid on our ordinary shares to
Israeli companies are exempt from such tax, except for dividends distributed from income
derived outside of Israel, which are subject to the 25% tax rate.
Dividends
paid from income derived from any of our approved enterprises or beneficiary enterprises
are subject to tax, which is withheld at the source, at the rate of 15%, although we
cannot assure you that we will designate the profits that are being distributed in a way
that will reduce shareholders tax liability to this tax rate.
Taxation of Non-Israeli
Shareholders
Non-residents
of Israel are generally subject to Israeli income tax on the receipt of dividends paid on
our ordinary shares, at the rates applicable to Israeli residents, which tax will be
withheld at source, unless a different rate is provided in a treaty between Israel and the
shareholders country of residence.
Under
the U.S.-Israel Treaty, the maximum Israeli withholding tax on dividends paid by us is
25%. Dividends of an Israeli company distributed from income of an approved enterprise or
beneficiary enterprise are subject to a 15% withholding tax under Israeli law. The
U.S.-Israel Tax Treaty further provides for a 12.5% Israeli dividend withholding tax on
dividends paid by an Israeli company to a U.S. corporation owning at least 10% or more of
such Israeli companys issued voting power for, in general, the part of the tax year
which precedes the date of payment of the dividend and the entire preceding tax year,
provided such U.S. corporation meets certain limitations concerning the amount of its
dividend and interest income. The lower 12.5% rate applies only to dividends from income
not derived from an approved enterprise or beneficiary enterprise in the applicable period
and does not apply if the company has more than 25% of its gross income derived from
certain types of passive income. Residents of the United States generally will have
withholding tax in Israel deducted at source. They may be entitled to a credit or
deduction for U.S. federal income tax purposes in the amount of the taxes withheld,
subject to detailed rules contained in U.S. tax legislation.
78
Capital gains taxes
applicable to non-Israeli shareholders
Capital
gains from the sale of our ordinary shares by non-Israeli shareholders are exempt from
Israeli taxation, provided that the capital gain is not derived from a permanent
establishment in Israel. In addition, the U.S.-Israel tax treaty exempts U.S. residents
who hold less than 10% of our voting rights, and who held less than 10% of our voting
rights during the 12 months prior to a sale of their shares, from Israeli capital gains
tax in connection with such sale.
UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES
The
following discussion summarizes the material U.S. federal income tax considerations
generally applicable to the purchase, ownership and disposition of our ordinary shares.
Unless otherwise stated, this summary deals only with shareholders that are U.S. Holders
(as defined below) who hold their ordinary shares as capital assets.
As
used in this section, the term U.S. Holder means a beneficial owner of an
ordinary share who is:
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|
an
individual citizen or resident of the United States or an individual treated as a U.S.
citizen or resident for U.S. federal income tax purposes;
|
|
|
a
corporation or other entity taxable as a corporation for U.S. federal income tax purposes
created or organized in or under the laws of the United States, any State
or the District of Columbia;
|
|
|
an
estate, the income of which is subject to U.S. federal income taxation regardless of its
source; or
|
|
|
any
trust if (A)(i) a court within the United States is able to exercise primary supervision
over the administration of the trust and (ii) one or more United States persons have the
authority to control all substantial decisions of the trust, or (B) such trust validly
elects to be treated as a United States person.
|
The
term Non-U.S. Holder means a beneficial owner of an ordinary share that is an
individual, corporation, estate or trust and is not a U.S. Holder. The tax consequences to
a Non-U.S. Holder may differ substantially from the tax consequences to a U.S. Holder.
Certain aspects of U.S. federal income tax relevant to a Non-U.S. Holder are discussed
below.
This
description is based on provisions of the U.S. Internal Revenue Code of 1986, as amended
(the Code), existing and proposed U.S. Treasury regulations promulgated
thereunder, administrative and judicial interpretations thereof, and the US-Israel Tax
Treaty, each as in effect as of the date of this prospectus. These sources may change,
possibly with retroactive effect, and are open to differing interpretations. This
description does not discuss all aspects of U.S. federal income taxation that may be
applicable to investors in light of their particular circumstances or to investors who are
subject to special treatment under U.S. federal income tax law, including:
|
|
dealers
in stocks, securities or currencies;
|
|
|
financial
institutions and financial services entities;
|
|
|
real
estate investment trusts;
|
|
|
regulated
investment companies;
|
|
|
persons
that receive ordinary shares in connection with the performance of services;
|
|
|
tax-exempt
organizations;
|
|
|
persons
that hold ordinary shares as part of a straddle or appreciated financial position or as
part of a hedging, conversion or other integrated instrument;
|
|
|
persons
who hold the ordinary shares through partnerships or other pass-through entities;
|
79
|
|
individual
retirement and other tax-deferred accounts;
|
|
|
expatriates
of the United States and certain former long-term residents of the United
States;
|
|
|
persons
liable for the alternative minimum tax;
|
|
|
persons
having a "functional currency" other than the U.S. dollar; and
|
|
|
direct,
indirect or constructive owners of 10% or more, by voting power or value, of our
company.
|
If
a partnership or an entity treated as a partnership for U.S. federal income tax purposes
owns ordinary shares, the U.S. federal income tax treatment of a partner in such a
partnership will generally depend upon the status of the partner and the activities of the
partnership. A partnership that owns ordinary shares and the partners in such partnership
should consult their tax own advisors about the U.S. federal income tax consequences of
holding and disposing of ordinary shares.
This
discussion does not consider the possible application of U.S. federal gift or estate tax
or alternative minimum tax.
All
investors are urged to consult their own tax advisors as to the particular tax
consequences to them of an investment in our ordinary shares, including the effect and
applicability of United States federal, state, local and foreign income and other tax laws
(including estate and gift tax laws) and tax treaties.
Distributions Paid on
the Ordinary Shares
Subject
to the discussion below under Passive Foreign Investment Company
Considerations, a U.S. Holder generally will be required to include in his or her
gross income as ordinary dividend income the amount of any distributions paid on the
ordinary shares, including the amount of any Israeli taxes withheld, to the extent that
those distributions are paid out of our current or accumulated earnings and profits, as
determined for U.S. federal income tax purposes. Subject to the discussion below under
Passive Foreign Investment Company Considerations, distributions in excess of
our earnings and profits will be applied against and will reduce the U.S. Holders
tax basis in its ordinary shares and, to the extent they exceed that tax basis, will be
treated as gain from a sale or exchange of those ordinary shares. Our dividends will not
qualify for the dividends-received deduction applicable in some cases to U.S.
corporations.
Dividends
that we pay in NIS, including the amount of any Israeli taxes withheld therefrom, will be
included in your income in a U.S. dollar amount calculated by reference to the exchange
rate in effect on the day such dividends are received, regardless of whether the payment
is in fact converted into U.S. dollars. A U.S. Holder who receives payment in NIS and
converts NIS into U.S. dollars at an exchange rate other than the rate in effect on such
day will have a foreign currency exchange gain or loss that would be treated as ordinary
income or loss. U.S. Holders should consult their own tax advisors concerning the U.S. tax
consequences of acquiring, holding and disposing of NIS.
Subject
to certain limitations, qualified dividend income received by a noncorporate
U.S. Holder in tax years beginning on or before December 31, 2010 will be subject to tax
at a reduced maximum tax rate of 15%. Distributions taxable as dividends paid on the
ordinary shares should qualify for the 15% rate provided that we are not a passive foreign
investment company (as described below) for U.S. tax purposes and that either: (i) we are
entitled to benefits under the income tax treaty between the United States and Israel (the
U.S.-Israel Tax Treaty) or (ii) the ordinary shares are readily tradable on an
established securities market in the United States and certain other requirements are met.
We believe that we are entitled to benefits under the U.S.-Israel Tax Treaty and that the
ordinary shares currently will be readily tradable on an established securities market in
the United States. However, no assurance can be given that the ordinary shares will remain
readily tradable. The rate reduction does not apply unless certain holding period
requirements are satisfied. With respect to the ordinary shares, the U.S. Holder must have
held such shares for at least 61 days during the 121-day period beginning 60 days before
the ex-dividend date. The rate reduction also does not apply to dividends received from
passive foreign investment companies, see discussion below, or in respect of certain
hedged positions or in certain other situations. The legislation enacting the reduced tax
rate contains special rules for computing the foreign tax credit limitation of a taxpayer
who receives dividends subject to the reduced tax rate. U.S. Holders of ordinary shares
should consult their own tax advisors regarding the effect of these rules in their
particular circumstances.
80
Subject
to the discussion below under Information Reporting and Back-up Withholding, a
Non-U.S. Holder generally will not be subject to U.S. federal income or withholding tax on
dividends received on ordinary shares unless that income is effectively connected with the
conduct by that Non-U.S. Holder of a trade or business in the United States, in which case
a corporate Non-U.S. Holder may also be subject to the U.S. branch profits tax.
Foreign Tax Credit
Any
dividend income resulting from distributions we pay to a U.S. Holder with respect to the
ordinary shares generally will be treated as foreign source income for U.S. foreign tax
credit limitation purposes. Subject to certain conditions and limitations, Israeli tax
withheld on dividends may be deducted from taxable income or credited against a U.S.
Holders U.S. federal income tax liability. The limitation on foreign taxes eligible
for credit is calculated separately with respect to specific classes of income. For this
purpose, any dividend that we distribute generally will constitute passive category
income, or, in the case of certain U.S. Holders, general category
income. The rules relating to the determination of foreign source income and the
foreign tax credit are complex, and the availability of a foreign tax credit depends on
numerous factors. Each investor who is a U.S. Holder should consult with its own tax
advisor to determine whether its income with respect to the ordinary shares would be
foreign source income and whether and to what extent that investor would be entitled to a
foreign tax credit.
Disposition of Ordinary
Shares
Upon
the sale or other disposition of ordinary shares, subject to the discussion below under
Passive Foreign Investment Company Considerations, a U.S. Holder generally
will recognize capital gain or loss equal to the difference between the amount realized on
the disposition and the holders adjusted tax basis in the ordinary shares. U.S.
Holders should consult their own advisors with respect to the tax consequences of the
receipt of a currency other than U.S. dollars upon such sale or other disposition.
Gain
or loss upon the disposition of the ordinary shares will be treated as long-term if, at
the time of the sale or disposition, the ordinary shares were held for more than one year.
The deductibility of capital losses by a U.S. Holder is subject to limitations. In
general, any gain or loss recognized by a U.S. Holder on the sale or other disposition of
ordinary shares will be U.S. source income or loss for U.S. foreign tax credit purposes.
U.S. Holders should consult their own tax advisors concerning the source of income for
U.S. foreign tax credit purposes and the effect of the U.S.-Israel Tax Treaty on the
source of income.
Subject
to the discussion below under Information Reporting and Back-up Withholding, a
Non-U.S. Holder generally will not be subject to U.S. federal income or withholding tax on
any gain realized on the sale or exchange of ordinary shares unless:
|
|
that
gain is effectively connected with the conduct by the Non-U.S. Holder of a trade or
business in the United States, and, if a tax treaty applies, is
attributable to a permanent establishment or fixed base of the Non-U.S.
Holder in the United States; or
|
|
|
in
the case of any gain realized by an individual Non-U.S. Holder, that holder is present in
the United States for 183 days or more in the taxable year of the sale or exchange, and
other conditions are met.
|
Passive Foreign
Investment Company Considerations
Special
U.S. federal income tax rules apply to U.S. Holders owning shares of a passive foreign
investment company. A non-U.S. corporation will be considered a passive foreign investment
company for any taxable year in which, after applying certain look-through rules, 75% or
more of its gross income consists of specified types of passive income, or 50% or more of
the average value of its assets consists of assets that produce, or are held for the
production of, passive income. For this purpose, passive income includes generally
dividends, interest, royalties, rents, annuities and the excess of gains over losses from
the disposition of assets which produce passive income.
81
If
we were classified as a passive foreign investment company, a U.S. Holder could be subject
to increased tax liability upon the sale or other disposition of ordinary shares or upon
the receipt of amounts treated as excess distributions. Under these rules, the
excess distribution and any gain would be allocated ratably over the U.S. Holders
holding period for the ordinary shares, and the amount allocated to the current taxable
year and any taxable year prior to the first taxable year in which we were a passive
foreign investment company would be taxed as ordinary income. The amount allocated to each
of the other taxable years would be subject to tax at the highest marginal tax rate in
effect for the applicable class of taxpayer for that year, and an interest charge for the
deemed deferral benefit would be imposed on the resulting tax allocated to such other
taxable years. The tax liability with respect to the amount allocated to years prior to
the year of the disposition, or excess distribution, cannot be offset by any
net operating losses. In addition, holders of stock in a passive foreign investment
company may not receive a step-up in basis on shares acquired from a decedent.
If we are a passive foreign investment company in any year, a U.S. Holder would be
required to file an annual return on IRS Form 8621 regarding distributions received with
respect to ordinary shares and any gain realized on the disposition of ordinary shares.
Based
on our current and projected income, assets and activities, we do not believe that we will
be a passive foreign investment company for our current taxable year. However, because the
determination of whether we are a passive foreign investment company is based upon the
composition of our income and assets from time to time, we cannot be certain that we will
not be considered a passive foreign investment company for the current taxable year or any
future taxable year.
The
passive foreign investment company tax consequences described above will not apply to a
U.S. Holder if the U.S. Holder makes an election to treat us as a qualified electing fund,
or QEF. If a U.S. Holder makes a timely QEF election, the U.S. Holder would be required to
include in income for each taxable year its pro rata share of our ordinary earnings
as ordinary income and its pro rata share of our net capital gain as long-term
capital gain, whether or not such amounts are actually distributed to the U.S. Holder.
However, a U.S. Holder would not be eligible to make a QEF election unless we comply with
certain applicable information reporting requirements. We will provide U.S. Holders with
the information needed to report income and gain under a QEF election should we become a
passive foreign investment company.
As
an alternative to making a QEF election, a U.S. Holder of passive foreign investment
company stock which is publicly traded may in certain circumstances avoid certain of the
tax consequences generally applicable to holders of a passive foreign investment company
by electing to mark the stock to market annually and recognizing as ordinary income or
loss each year an amount equal to the difference as of the close of the taxable year
between the fair market value of the passive foreign investment company stock and the U.S.
Holders adjusted tax basis in the passive foreign investment company stock. Losses
would be allowed only to the extent of net mark-to-market gain previously included by the
U.S. Holder under the election for prior taxable years. Income recognized and deductions
allowed under the mark-to-market provisions, as well as any gain or loss on the
disposition of ordinary shares with respect to which the mark to market election is made,
are generally treated as ordinary income or loss (except that loss is treated as capital
loss to the extent the loss exceeds the net mark-to-market gains, if any, that a U.S.
Holder included in its income with respect to such ordinary shares in prior years).
However, gain or loss from the disposition of ordinary shares (as to which a
mark-to-market election was made) in a year in which we are no longer a
passive foreign investment company, will be capital gain or loss. The mark-to-market
election is available for so long as our ordinary shares constitute marketable
stock, which includes stock of a passive foreign investment company that is
regularly traded on a qualified exchange or other market.
Generally, a qualified exchange or other market includes a national securities
exchange that is registered with the Securities and Exchange Commission or the national
market system established pursuant to Section 11A of the Securities Exchange Act of 1934.
A class of stock that is traded on one or more qualified exchanges or other markets is
regularly traded on an exchange or market for any calendar year during which
that class of stock is traded, other than in de minimis quantities, on at least 15 days
during each calendar quarter. We believe that The NASDAQ Capital Market will constitute a
qualified exchange or other market for this purpose. However, we can not be certain that
our ordinary shares will continue to trade on The NASDAQ Capital Market or that the
ordinary shares will be regularly traded for this purpose.
The
rules applicable to owning shares of a passive foreign investment company are complex, and
each holder who is a U.S. Holder should consult with its own tax advisor regarding the
consequences of investing in a passive foreign investment company.
82
Information Reporting
and Backup Withholding
Payments
in respect of ordinary shares may be subject to information reporting to the U.S. Internal
Revenue Service and to U.S. backup withholding tax at a rate equal to the fourth lowest
income tax rate applicable to individuals (which, under current law, is 28%). Backup
withholding will not apply, however, if you (i) are a corporation or come within certain
exempt categories, and demonstrate the fact when so required, or (ii) furnish a correct
taxpayer identification number and make any other required certification. U.S. Holders who
are required to establish their exempt status generally must provide such certification on
IRS Form W-9.
Backup
withholding is not an additional tax. Amounts withheld under the backup withholding rules
may be credited against a U.S. Holders U.S. tax liability, and a U.S. Holder may
obtain a refund of any excess amounts withheld under the backup withholding rules by
filing the appropriate claim for refund with the IRS.
Any
U.S. holder who holds 10% or more in vote or value of our ordinary shares will be subject
to certain additional United States information reporting requirements.
U.S. Gift and Estate Tax
An
individual U.S. Holder of ordinary shares will generally be subject to U.S. gift and
estate taxes with respect to ordinary shares in the same manner and to the same extent as
with respect to other types of personal property.
F.
|
Dividends
and Paying Agents
|
Not
applicable.
Not
applicable.
We
are subject to the reporting requirements of the United States Securities Exchange Act of
1934, as amended, as applicable to foreign private issuers as defined in Rule
3b-4 under the Exchange Act, and in accordance therewith, we file annual and interim
reports and other information with the Securities and Exchange Commission.
As
a foreign private issuer, we are exempt from certain provisions of the Exchange Act.
Accordingly, our proxy solicitations are not subject to the disclosure and procedural
requirements of Regulation 14A under the Exchange Act and transactions in our equity
securities by our officers and directors are exempt from reporting and the
short-swing profit recovery provisions contained in Section 16 of the Exchange
Act. In addition, we are not required under the Exchange Act to file periodic reports and
financial statements as frequently or as promptly as United States companies whose
securities are registered under the Exchange Act. However, we make available on our
website www.tat.co.il, our annual audited financial statements, which have been examined
and reported on, with an opinion expressed by, an independent public accounting firm, and
we intend to file reports with the Securities and Exchange Commission on Form 6-K
containing unaudited financial information for the first three quarters of each fiscal
year.
This
annual report on Form 20-F and the exhibits thereto and any other document we file
pursuant to the Exchange Act may be inspected without charge and copied at prescribed
rates at the following Securities and Exchange Commission public reference room at 100 F
Street, N.E., Room 1580, Washington, D.C. 20549; and on the Securities and Exchange
Commission Internet site (http://www.sec.gov) and on our website
www.tat.co.il.
You
may obtain information on the operation of the Securities and Exchange Commissions
public reference room in Washington, D.C. by calling the Securities and Exchange
Commission at 1-800-SEC-0330. The Exchange Act file number for our Securities and Exchange
Commission filings is 0-16050.
83
In
addition, since August 16, 2005 we are also listed on the TASE. From such date we submit
copies of all our filings with the SEC to the Israeli Securities Authority and TASE. Such
copies can be retrieved electronically through the TASE internet messaging system
(www.maya.tase.co.il) and, in addition, through the MAGNA distribution site of the Israeli
Securities Authority
(www.magna.isa.gov.il).
The
documents concerning our company which are referred to in this annual report may also be
inspected at our offices located at Reem Industrial Park Neta, Boulevard Bnei Ayish,
Gedera, Israel.
I.
|
Subsidiary
Information
|
Not
applicable.
Item 11.
|
|
Quantitative and Qualitative Disclosures about Market Risk
|
We
do not own and have not issued any market risk sensitive instruments about which
disclosure is required to be provided pursuant to this Item.
Effects of Changes in
Interest Rates
We
pay interest on our long-term loans facilities in accordance with the nature of each loan.
For loans that bear Libor Rate, we pay interest at a rate per annum equal to up to 1.85%
in excess of the Libor Rate. For loans that linked to the Consumer Price Index (the
CPI), we pay interest at rate per annum equal to up to 6.3% in excess of the
CPI As a result, changes in the general level of interest rates directly affect the amount
of interest payable by us under these facilities.
Effects of Currency
Exchange Fluctuations
Our
financial statements are stated in dollars, while a portion of our expenses, primarily
labor expenses, is incurred in NIS and a part of our revenues are quoted in NIS.
Additionally, certain assets, as well as a portion of our liabilities, are denominated in
NIS. As a result, our operations may be affected by fluctuations of the U.S. dollar/NIS
exchange rate. The NIS value of our U.S. dollar revenues are adversely affected by the
appreciation of the NIS against the U.S. dollar. In 2008 and 2007, the NIS appreciated
against the U.S. dollar by 1.15% and 9.0%, respectively. We estimate that a devaluation of
1% of the U.S. dollar against the NIS would result in a decrease of approximately $100,000
in our operating income.
Item 12.
|
|
Description of Securities Other than Equity Securities
|
Not
Applicable.
PART II
Item 13.
|
|
Defaults, Dividend Arrearages and Delinquencies
|
None.
Item 14.
|
|
Material Modifications to the Rights of Security Holders
|
None.
Item 15.
|
|
Controls and Procedures
|
Not
applicable.
84
Item 15T.
|
|
Controls and Procedures
|
Disclosure Controls and
Procedures
We
maintain disclosure controls and procedures that are designed to ensure that information
required to be disclosed in its Exchange Act reports is recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange
Commissions rules and forms, and that such information is accumulated and
communicated to our chief executive officer and chief financial officer to allow timely
decisions regarding required disclosure. Our management, including our chief executive
officer and chief financial officer, conducted an evaluation of our disclosure controls
and procedures, as defined under Exchange Act Rule 13a-15(e), as of the end of the period
covered by this Annual Report on Form 20-F. Based upon that evaluation, our chief
executive officer and chief financial officer have concluded that, as of such date, our
disclosure controls and procedures were effective.
Managements Annual
Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal control over
our financial reporting. Internal control over financial reporting is defined in Rule
13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process
designed by, or under the supervision of, the companys principal executive and
principal financial officers and effected by the companys board of directors,
management and other personnel, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles and includes those policies
and procedures that:
|
|
pertain
to the maintenance of records that in reasonable detail accurately and fairly
reflect the transaction and dispositions of the assets of the company;
|
|
|
provide
reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and
|
|
|
provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use of disposition of the companys assets that could have a material
effect on the financial statements.
|
Because
of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
Our
management assessed the effectiveness of our internal control over financial reporting as
of December 31, 2008. In making this assessment, our management used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control-Integrated Framework. Based on that assessment, our management concluded
that as of December 31, 2008, our internal control over financial reporting is effective.
A subsidiary of ours is currently conducting an investigation of possible fraud occurring
during the first half of 2008 by one of its former executive officers. If such fraud did
occur, we believe that it was not in amounts material to this subsidiary or us.
This
annual report does not include an attestation report of our independent registered public
accounting firm regarding internal control over financial report. Managements
report was not subject to attestation by our independent registered public accounting
firm pursuant to temporary rules of the Securities and Exchange Commission that permit us
to provide only managements report in this annual report.
85
Changes in Internal
Control over Financial Reporting
There
was no change in our internal control over financial reporting that occurred during the
period covered by this annual report that has materially affected, or is reasonably likely
to materially affect, our internal controls over financial reporting.
Item 16A.
|
|
Audit Committee Financial Expert
|
Our
board of directors has determined that each of Rami Daniel and Avi Shani, our outside
directors under Israeli law, both of whom also qualify as independent directors, meets the
definition of an audit committee financial expert, as defined by rules of the Securities
and Exchange Commission. For a brief listing of the relevant experience of Rami Daniel and
Avi Shani, see Item 6.A. Directors, Senior Management and Employees Directors
and Senior Management.
We
have adopted a code of ethics that applies to our chief executive officer and all senior
financial officers of our company, including the chief financial officer, chief accounting
officer or controller, or persons performing similar functions. The code of ethics is
publicly available on our website at
www.tat.co.il
. Written copies are available
upon request. If we make any substantive amendment to the code of ethics or grant any
waivers, including any implicit waiver, from a provision of the codes of ethics, we will
disclose the nature of such amendment or waiver on our website.
Item 16C.
|
|
Principal Accountant Fees and Services
|
Fees Paid to Independent
Public Accountant
The
following table sets forth, for each of the years indicated, the fees paid to our
principal independent registered public accounting firm. All of such fees were
pre-approved by our Audit Committee.
|
|
Year Ended December 31,
|
|
Services Rendered
|
2008
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audit (1)
|
|
|
$
|
327,866
|
|
$
|
365,489
|
|
|
Audit-related (2)
|
|
|
|
59,500
|
|
|
27,500
|
|
|
Tax (3)
|
|
|
|
4,300
|
|
|
6,015
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
391,666
|
|
$
|
399,004
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Audit
fees are for audit services for each of the years shown in the table, including
fees associated with the annual audit and reviews of our quarterly financial
results, consultations on various accounting issues and audit services provided
in connection with other statutory or regulatory filings. In 2007, $173,124 of
the audit fees relate to services provided in connection with the initial
public offering of Limco-Piedmont in July 2007.
|
|
(2)
|
Audit related fees relate to
professional services rendered primarily for due diligence services and the audit of the
employee benefit plan of Limco.
|
|
(3)
|
Tax
fees relate to professional services rendered for tax compliance and tax
advice. These services include assistance regarding international and Israeli
taxation.
|
86
Pre-Approval Policies
and Procedures
Our
Audit Committee has adopted a policy and procedures for the pre-approval of audit and
non-audit services rendered by our independent public accounting firm Baker Tilly Virchow
Krause, LLP (formerly known as Virchow Krause & Company, LLP) an independent member of
Baker Tilly International. Pre-approval of an audit or non-audit service may be given as a
general pre-approval, as part of the audit committees approval of the scope of the
engagement of our independent auditor, or on an individual basis. Any proposed services
exceeding general pre-approved levels also requires specific pre-approval by our audit
committee. The policy prohibits retention of the independent public accountants to perform
the prohibited non-audit functions defined in Section 201 of the Sarbanes-Oxley Act or the
rules of the SEC, and also requires the Audit Committee to consider whether proposed
services are compatible with the independence of the public accountants.
Item 16D.
|
|
Exemptions from the Listing Standards for Audit Committee
|
Not
Applicable.
Item 16E.
|
|
Purchase of Equity Securities By The Issuer and Affiliated Purchasers
|
Not
Applicable.
PART III
Item 17.
|
|
Financial Statements
|
We
have elected to furnish financial statements and related information specified in Item 18.
Item 18.
|
|
Financial Statements
|
|
|
|
|
|
|
|
|
|
|
Consolidated Financial Statements
|
|
Index to Financial Statements
|
F-1
|
Report of Independent Registered Public Accounting Firm
|
F-2
|
Consolidated Balance Sheets
|
F-3-F-4
|
Consolidated Statements of Income
|
F-5
|
Consolidated Statements of Changes in Shareholders' Equity
|
F-6
|
Consolidated Statements of Cash Flows
|
F-7-F-8
|
Notes to Consolidated Financial Statements
|
F-9-F-50
|
|
|
87
The following exhibits are filed as a
part of this Annual Report:
1.1
|
Memorandum
of Association of the Registrant (1)
|
1.2
|
Articles
of Association of the Registrant (1)
|
2.1
|
Specimen
Certificate for Ordinary Shares (1)
|
4.1
|
Registrants
1999 Stock Purchase Plan (2)
|
4.2
|
Agreement
dated February 10, 2000, by and between the Registrant and TAT Industries Ltd. (English
summary translation) (2)
|
4.3
|
English
translation of Share Sales Agreement, dated March 27, 2008, by and between the
Registrant and Bental Investments Cooperative Agricultures Society Ltd. (5)
|
4.4
|
English
translation of Shareholders' Agreement, dated May 21, 2008, by and between the
Registrant, Tat Industries Ltd. and Bental Investments Cooperative Agricultures Society
Ltd. (5)
|
4.5
|
English
translation of Amendment to the Share Sales and Options Agreement and the
Shareholders' Agreement, dated May 21, 2008, by and between the Registrant, Tat
Industries Ltd. and Bental Investments Cooperative Agricultures Society Ltd. (5)
|
4.6
|
English
translation of Share Sales Agreement dated April 15, 2008, by and between the
Registrant and Mivtach Shamir Investments (1993) Ltd. (5)
|
4.7
|
Agreement
and Plan of Merger dated April 3, 2009 by and between the Registrant,
Limco-Piedmont, Inc. and LIMC Acquisition Company (4)
|
8
|
List
of Subsidiaries of the Registrant
|
12.1
|
Certification
of the Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of
the Securities Exchange Act, as amended
|
12.2
|
Certification
of the Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of
the Securities Exchange Act, as amended
|
13.1
|
Certification
of the Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
|
13.2
|
Certification
of the Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
|
(1)
|
Filed
as an exhibit to the Registrants Annual Report on Form 20-F for the
year ended December 31, 1992, and incorporated herein by reference.
|
(2)
|
Incorporated
by reference to the Registrants Annual Report on Form 20-F for the
year ended December 31, 1999, and incorporated herein by reference.
|
(3)
|
Incorporated
by reference to the Registrants Annual Report on Form 20-F for the
year ended December 31, 2006, and incorporated herein by reference.
|
(4)
|
Filed
as an exhibit to the Registrants Registration Statement on Form F-4
filed on May 7, 2009 and incorporated herein by reference.
|
(5)
|
Filed
as an exhibit to the Registrants Annual Report on Form 20-F for the
year ended December 31, 2007, and incorporated herein by reference.
|
88
TAT TECHNOLOGIES LTD.
AND ITS SUBSIDIARIES
CONSOLIDATED FINANCIAL
STATEMENTS
AS OF DECEMBER 31, 2008
IN U.S. DOLLARS
INDEX
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Shareholders of:
TAT Technologies Ltd. and
Subsidiaries
We have audited the accompanying
consolidated balance sheets of TAT Technologies Ltd. and Subsidiaries (TAT) as
of December 31, 2008 and 2007, and the related consolidated statements of income,
changes in shareholders equity and cash flows for each of the three years in the
period ended December 31, 2008. These consolidated financial statements are the
responsibility of TATs management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement. TAT is
not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of
TATs internal control over financial reporting. Accordingly, we express no such
opinion. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated
financial statements referred to above, present fairly, in all material respects, the
consolidated financial position of TAT Technologies Ltd. and Subsidiaries as of
December 31, 2008 and 2007 and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December 31, 2008, in
conformity with accounting principles generally accepted in the United States of America.
/s/ Virchow,
Krause & Company, LLP
(Now known as Baker Tilly Virchow Krause, LLP
an independent member
of Baker Tilly International)
Minneapolis, Minnesota
May 7, 2009
F - 2
|
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
|
CONSOLIDATED BALANCE SHEETS
|
|
U.S. dollars in thousands
|
|
December 31,
|
|
2008
|
2007
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
Cash and cash equivalents
|
|
|
$
|
33,899
|
|
$
|
15,114
|
|
Marketable securities (Note 2e)
|
|
|
|
11,300
|
|
|
28,806
|
|
Trade accounts receivable (net of allowance for doubtful accounts of $154 and
|
|
|
$155 at December 31, 2008 and 2007, respectively)
|
|
|
|
22,086
|
|
|
14,679
|
|
Other accounts receivable and prepaid expenses
|
|
|
|
6,162
|
|
|
3,471
|
|
TAT Industries Ltd. current account (Note 7)
|
|
|
|
383
|
|
|
576
|
|
Inventories (Note 3)
|
|
|
|
35,014
|
|
|
28,189
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
108,844
|
|
|
90,835
|
|
|
|
|
|
|
|
|
|
LONG-TERM ASSETS:
|
|
|
|
|
|
Funds in respect of employee right upon retirement
|
|
|
|
3,705
|
|
|
4,156
|
|
|
|
|
Property, plant and equipment, net (Note 4)
|
|
|
|
15,187
|
|
|
11,927
|
|
|
|
|
Intangible assets, net (Note 5)
|
|
|
|
2,195
|
|
|
1,709
|
|
|
|
|
Goodwill (Note 2 l)
|
|
|
|
5,999
|
|
|
4,780
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
$
|
135,930
|
|
$
|
113,407
|
|
|
|
|
|
|
The accompanying notes are an
integral part of the consolidated financial statements.
F - 3
|
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
|
CONSOLIDATED BALANCE SHEETS
|
|
U.S. dollars in thousands (except for share data)
|
|
December 31,
|
|
2008
|
2007
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
Current maturities of long-term loans (Note 8)
|
|
|
$
|
150
|
|
$
|
-
|
|
Trade accounts payable
|
|
|
|
10,718
|
|
|
7,067
|
|
Other accounts payable and accrued expenses (Note 6)
|
|
|
|
7,360
|
|
|
4,310
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
18,228
|
|
|
11,377
|
|
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES:
|
|
|
Bental call/put option (Note 1.f)
|
|
|
|
2,183
|
|
|
-
|
|
Long-term loans, net of current maturities (Note 8)
|
|
|
|
5,188
|
|
|
-
|
|
Liability in respect of employee rights upon retirement
|
|
|
|
4,468
|
|
|
4,175
|
|
Long-term deferred tax liability
|
|
|
|
1,086
|
|
|
581
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
|
12,925
|
|
|
4,756
|
|
|
|
|
|
|
|
|
|
Minority interest
|
|
|
|
28,700
|
|
|
24,481
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENT LIABILITIES (Note 9)
|
|
|
|
|
|
SHAREHOLDERS' EQUITY:
|
|
|
Share capital (Note 10) -
|
|
|
Ordinary shares of NIS 0.9 par value - Authorized: 10,000,000 shares at
|
|
|
December 31, 2008 and 2007; Issued and outstanding: 6,552,671 shares and
|
|
|
6,542,671 shares at December 31, 2008 and 2007, respectively
|
|
|
|
2,204
|
|
|
2,201
|
|
Additional paid-in capital
|
|
|
|
39,476
|
|
|
39,308
|
|
Accumulated other comprehensive loss
|
|
|
|
(763
|
)
|
|
-
|
|
Retained earnings
|
|
|
|
35,160
|
|
|
31,284
|
|
|
|
|
|
|
|
|
|
Total shareholders' equity
|
|
|
|
76,077
|
|
|
72,793
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' equity
|
|
|
$
|
135,930
|
|
$
|
113,407
|
|
|
|
|
|
|
The accompanying notes are an integral
part of the consolidated financial statements.
F - 4
|
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
|
CONSOLIDATED STATEMENTS OF INCOME
|
|
U.S dollars in thousands (except share and per share data)
|
|
Year ended December 31,
|
|
2008
|
2007
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues (Note 13):
|
|
|
|
|
|
|
|
|
|
|
|
Sale of products
|
|
|
$
|
31,724
|
|
$
|
18,928
|
|
$
|
18,512
|
|
Services and other
|
|
|
|
71,565
|
|
|
69,776
|
|
|
59,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103,289
|
|
|
88,704
|
|
|
77,533
|
|
Cost of revenues:
|
|
|
Sale of products
|
|
|
|
22,977
|
|
|
13,399
|
|
|
12,590
|
|
Services and other
|
|
|
|
57,586
|
|
|
51,808
|
|
|
45,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,563
|
|
|
65,207
|
|
|
57,639
|
|
|
|
|
Gross profit
|
|
|
|
22,726
|
|
|
23,497
|
|
|
19,894
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
Selling and marketing expenses
|
|
|
|
4,369
|
|
|
3,719
|
|
|
3,466
|
|
General and administrative expenses
|
|
|
|
12,407
|
|
|
10,995
|
|
|
6,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,776
|
|
|
14,714
|
|
|
10,176
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
5,950
|
|
|
8,783
|
|
|
9,718
|
|
Financial income (Note 14a)
|
|
|
|
2,677
|
|
|
1,707
|
|
|
721
|
|
Financial expenses (Note 14a)
|
|
|
|
(1,503
|
)
|
|
(1,006
|
)
|
|
(1,185
|
)
|
Other income (expenses), net (Note 14b)
|
|
|
|
(236
|
)
|
|
26,478
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
|
6,888
|
|
|
35,962
|
|
|
9,313
|
|
Income taxes (Note 12)
|
|
|
|
1,795
|
|
|
3,212
|
|
|
3,247
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interests
|
|
|
|
5,093
|
|
|
32,750
|
|
|
6,066
|
|
|
|
|
Share in result of affiliated company prior to its consolidation
|
|
|
|
674
|
|
|
-
|
|
|
-
|
|
Minority interests in subsidiaries earnings
|
|
|
|
(1,499
|
)
|
|
(771
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
$
|
4,268
|
|
$
|
31,979
|
|
$
|
6,066
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share (Note 11)
|
|
|
$
|
0.652
|
|
$
|
5.041
|
|
$
|
1.004
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share (Note 11)
|
|
|
$
|
0.650
|
|
$
|
4.990
|
|
$
|
0.984
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares - basic
|
|
|
|
6,546,055
|
|
|
6,344,041
|
|
|
6,042,671
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares - diluted
|
|
|
|
6,566,249
|
|
|
6,407,504
|
|
|
6,163,025
|
|
|
|
|
|
|
|
|
The accompanying notes are an
integral part of the consolidated financial statements.
F - 5
|
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
|
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
|
|
U.S. dollars in thousands (except for share data)
|
|
Share capital
|
Additional
paid-in
capital
|
Accumulated other
comprehensive
income (loss)
|
Retained
earnings
(Accumulated
deficit)
|
Total
comprehensive
income
|
Total
shareholders'
equity
|
|
Number
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2006
|
|
|
|
6,042,671
|
|
$
|
2,094
|
|
$
|
35,704
|
|
$
|
(1
|
)
|
$
|
(2,936
|
)
|
|
|
|
$
|
34,861
|
|
Comprehensive income:
|
|
|
Net income
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6,066
|
|
$
|
6,066
|
|
|
6,066
|
|
Unrealized gain on available-for-sale
|
|
|
securities net of reclassification
|
|
|
adjustments for gain realized
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1
|
|
|
-
|
|
|
1
|
|
|
1
|
|
Cash dividends
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,208
|
)
|
|
-
|
|
|
(1,208
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2006
|
|
|
|
6,042,671
|
|
|
2,094
|
|
|
35,704
|
|
|
-
|
|
|
1,922
|
|
|
|
|
|
39,720
|
|
|
|
|
Issuance of shares
|
|
|
|
500,000
|
|
|
107
|
|
|
3,363
|
|
|
-
|
|
|
-
|
|
|
|
|
|
3,470
|
|
Share based compensation expense
|
|
|
|
-
|
|
|
-
|
|
|
241
|
|
|
-
|
|
|
-
|
|
|
|
|
|
241
|
|
Net income (comprehensive income)
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
31,979
|
|
$
|
31,979
|
|
|
31,979
|
|
Cash dividends
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,617
|
)
|
|
-
|
|
|
(2,617
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
31,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2007
|
|
|
|
6,542,671
|
|
|
2,201
|
|
|
39,308
|
|
|
-
|
|
|
31,284
|
|
|
|
|
|
72,793
|
|
Issuance of shares
|
|
|
|
10,000
|
|
|
3
|
|
|
13
|
|
|
-
|
|
|
-
|
|
|
|
|
|
16
|
|
Share based compensation expense
|
|
|
|
-
|
|
|
-
|
|
|
155
|
|
|
-
|
|
|
-
|
|
|
|
|
|
155
|
|
Excess of purchase price over carrying
|
|
|
amount of Bental Industries Ltd.
|
|
|
shares acquired from parent company
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(392
|
)
|
|
|
|
|
(392
|
)
|
Comprehensive income:
|
|
|
Unrealized loss on available-for-sale
|
|
|
securities, net of taxes
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(90
|
)
|
|
-
|
|
$
|
(90
|
)
|
|
(90
|
)
|
Foreign currency translation loss
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(673
|
)
|
|
-
|
|
|
(673
|
)
|
|
(673
|
)
|
Net income
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,268
|
|
|
4,268
|
|
|
4,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
|
|
6,552,671
|
|
$
|
2,204
|
|
$
|
39,476
|
|
$
|
(763
|
)
|
$
|
35,160
|
|
|
|
|
$
|
76,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral
part of the consolidated financial statements.
F - 6
|
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
U.S. dollars in thousands
|
|
Year ended December 31,
|
|
2008
|
2007
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
$
|
4,268
|
|
$
|
31,979
|
|
$
|
6,066
|
|
Adjustments to reconcile net income to net cash provided by
|
|
|
operating activities:
|
|
|
Depreciation and amortization
|
|
|
|
3,353
|
|
|
2,031
|
|
|
1,815
|
|
Impairment of goodwill
|
|
|
|
-
|
|
|
143
|
|
|
-
|
|
Gain on sale of property and equipment
|
|
|
|
(27
|
)
|
|
(43
|
)
|
|
(21
|
)
|
Loss (gain) on sale of marketable securities
|
|
|
|
236
|
|
|
(34
|
)
|
|
(38
|
)
|
Provision for doubtful debts
|
|
|
|
(1
|
)
|
|
(125
|
)
|
|
(116
|
)
|
Minority interest in subsidiaries earnings
|
|
|
|
1,499
|
|
|
771
|
|
|
-
|
|
Share in result of affiliated company prior to its consolidation
|
|
|
|
(674
|
)
|
|
-
|
|
|
-
|
|
Profit from partial realization of investment in subsidiary
|
|
|
company
|
|
|
|
-
|
|
|
(26,375
|
)
|
|
-
|
|
Share based compensation expense
|
|
|
|
155
|
|
|
241
|
|
|
-
|
|
Share based compensation expense (minority interest)
|
|
|
|
66
|
|
|
149
|
|
|
-
|
|
Interest accrual in respect of call option to minority
|
|
|
|
28
|
|
|
-
|
|
|
-
|
|
Termination of long-term deferred financing cost
|
|
|
|
-
|
|
|
-
|
|
|
149
|
|
Changes in operating assets and liabilities:
|
|
|
Deferred income taxes, net
|
|
|
|
(197
|
)
|
|
(321
|
)
|
|
88
|
|
Increase in trade accounts receivable
|
|
|
|
(4,177
|
)
|
|
(985
|
)
|
|
(2,598
|
)
|
Increase in other accounts receivable and prepaid expenses
|
|
|
|
(936
|
)
|
|
(807
|
)
|
|
(756
|
)
|
Increase in inventories
|
|
|
|
(2,410
|
)
|
|
(3,261
|
)
|
|
(2,460
|
)
|
(Decrease) increase in trade accounts payable
|
|
|
|
(627
|
)
|
|
(963
|
)
|
|
2,579
|
|
Increase (decrease) in other accounts payable and accrued
|
|
|
expenses
|
|
|
|
659
|
|
|
(1,564
|
)
|
|
510
|
|
Accrued severance pay, net
|
|
|
|
477
|
|
|
(32
|
)
|
|
(65
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
|
1,692
|
|
|
804
|
|
|
5,153
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
Proceeds from partial realization of investment in subsidiary
|
|
|
company
|
|
|
|
-
|
|
|
8,726
|
|
|
-
|
|
Purchase of additional shares from minority
|
|
|
|
(129
|
)
|
|
-
|
|
|
-
|
|
Proceeds from sale of short-term investments
|
|
|
|
26,358
|
|
|
8,028
|
|
|
1,610
|
|
Purchase of short-term investments
|
|
|
|
(9,318
|
)
|
|
(36,800
|
)
|
|
(1,249
|
)
|
Proceeds from sale of property and equipment
|
|
|
|
36
|
|
|
97
|
|
|
68
|
|
Purchase of property and equipment
|
|
|
|
(3,558
|
)
|
|
(6,303
|
)
|
|
(1,694
|
)
|
Increase in short-term deposits
|
|
|
|
(1,009
|
)
|
|
-
|
|
|
(1,018
|
)
|
Decrease in short-term deposits
|
|
|
|
-
|
|
|
1,533
|
|
|
-
|
|
Acquisition of subsidiary, net of cash acquired (2)
|
|
|
|
(12
|
)
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
|
12,368
|
|
|
(24,719
|
)
|
|
(2,283
|
)
|
|
|
|
|
|
|
|
The accompanying notes are an
integral part of the consolidated financial statements.
F - 7
|
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT.)
|
|
U.S. dollars in thousands
|
|
Year ended December 31,
|
|
2008
|
2007
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of long-term loans
|
|
|
|
(39
|
)
|
|
(8,000
|
)
|
|
(3,000
|
)
|
Proceeds from long-term loans
|
|
|
|
5,000
|
|
|
-
|
|
|
-
|
|
Payment of cash dividend
|
|
|
|
-
|
|
|
(2,617
|
)
|
|
(1,208
|
)
|
Parent company - current account
|
|
|
|
193
|
|
|
(796
|
)
|
|
117
|
|
Proceeds from exercise of options and warrants
|
|
|
|
16
|
|
|
3,470
|
|
Proceeds from issuance of shares by subsidiary company to minority
|
|
|
|
-
|
|
|
41,210
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
|
5,170
|
|
|
33,267
|
|
|
(4,091
|
)
|
|
|
|
|
|
|
|
|
|
|
Effect of changes in exchange rate on cash and cash equivalents of
|
|
|
foreign currency subsidiary company
|
|
|
|
(445
|
)
|
|
-
|
|
|
-
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
|
18,785
|
|
|
9,352
|
|
|
(1,221
|
)
|
Cash and cash equivalents at the beginning of the year
|
|
|
|
15,114
|
|
|
5,762
|
|
|
6,983
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the year
|
|
|
$
|
33,899
|
|
$
|
15,114
|
|
$
|
5,762
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Supplemental disclosure of cash activities:
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
Interest
|
|
|
$
|
187
|
|
$
|
854
|
|
$
|
752
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
$
|
4,131
|
|
$
|
4,059
|
|
$
|
4,285
|
|
|
|
|
|
|
|
|
|
|
|
(2)
Acquisition of subsidiary, net of cash acquired (see also
|
|
|
Note 1 f):
|
|
|
|
|
|
Net fair value of the assets acquired and liabilities
|
|
|
assumed at acquisition date was as follows:
|
|
|
|
|
|
Working capital, net (excluding cash and cash equivalents)
|
|
|
$
|
(1,291
|
)
|
$
|
-
|
|
$
|
(443
|
)
|
Property and equipment
|
|
|
|
(2,246
|
)
|
|
-
|
|
|
-
|
|
Customer base
|
|
|
|
(878
|
)
|
|
-
|
|
|
-
|
|
Orders backlog
|
|
|
|
(568
|
)
|
|
-
|
|
|
-
|
|
Goodwill
|
|
|
|
(1,185
|
)
|
|
-
|
|
|
443
|
|
Long-term loans, net of current maturities
|
|
|
|
242
|
|
|
-
|
|
|
-
|
|
Accrued severance pay
|
|
|
|
283
|
|
|
-
|
|
|
-
|
|
Deferred tax liability
|
|
|
|
404
|
|
|
-
|
|
|
-
|
|
Fair value of call option to minority
|
|
|
|
2,155
|
|
|
-
|
|
|
-
|
|
Minority interest
|
|
|
|
3,002
|
|
|
-
|
|
|
-
|
|
Investment in affiliated company account
|
|
|
|
462
|
|
|
-
|
|
|
-
|
|
Excess of purchase price over carrying amount of Bental
|
|
|
Industries Ltd. shares acquired from parent company
|
|
|
|
(392
|
)
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(12
|
)
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral
part of the consolidated financial statements.
F - 8
|
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands (except share and per share data)
|
NOTE 1 GENERAL
|
a.
|
TAT
Technologies Ltd., an Israeli corporation, together with its subsidiaries (TAT),
is principally engaged in the following activities:
|
|
|
manufacture
and sale of a broad range of heat transfer equipment;
|
|
|
remanufacture,
overhaul and repair of heat transfer equipment;
|
|
|
maintenance,
repair and overhaul of auxiliary power units, propellers, landing gears and related
components;
|
|
|
design,
development and manufacture of aviation and flow control accessories including fuel
components, secondary power systems, and various instrumentation and electronic
assemblies;
|
|
|
long-term
service contracts for the maintenance and overhaul of certain airplane parts and
equipment; and
|
|
|
production
and development of precision electric motors, mainly earmarked for the defense industries.
|
|
The
products developed, repaired, and maintained by TAT are primarily used for airborne
systems on commercial and military aircrafts as well as for defense ground systems. The
principal markets of TAT are in Israel, Europe and the United States.
|
|
b.
|
TAT
depends on a limited number of suppliers for some standard and custom designed
components for its systems. If such supplier fails to deliver the necessary
components, TAT may be required to seek alternative sources of supply. A change
in suppliers could result in manufacturing delays, which could cause a possible
loss of sales and, consequently, could adversely affect TATs results of
operations and cash position.
|
|
c.
|
TATs
shares are listed on the NASDAQ and Tel-Aviv stock exchanges.
|
|
d.
|
As
of December 31, 2008, TAT owns 61.83% of a U.S. subsidiary: Limco-Piedmont Inc.
(Limco), which completed an initial public offering (IPO)
of its shares on July 18, 2007. Prior to the IPO, TAT owned 100% of Limco.
Pursuant to the completion of the IPO, TAT recognized a gain of $26.4 million,
before taxes of $1.2 million. Of such gain, $21.7 million was attributable to
the sale of 4,205,000 shares to the public by Limco for $41.2 million net of
issuance costs and $4.7 million was attributable to the gain TAT recorded as a
result of the sale of 855,000 shares of common stock of Limco it held for $8.7
million net of issuance costs.
|
F - 9
|
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands (except share and per share data)
|
NOTE 1 GENERAL
(Cont.)
|
Limco
conducts its operations through two wholly-owned subsidiary companies: Limco-Airepair
Inc. (Limco) and Piedmont Aviation Component Services LLC (Piedmont).
On February 28, 2007, TAT established a new Delaware corporation: Limco Inc. and Limco
established a new Delaware corporation: Limco Airepair Inc. (Limco Delaware). On March 2,
2007, all assets, except Limcos membership interest in Piedmont Aviation Component
Services, LLC, and all liabilities were assumed by Limco Delaware. On March 5, 2007 Limco
merged with Limco Inc. As part of the merger, TAT received 9,000,000 shares of Limco Inc.
for its 37,500 shares of Limco.
|
|
e.
|
TATs
parent company is TAT Industries Ltd., an Israeli corporation whose shares are
listed on the Tel-Aviv Stock Exchange (TAT Industries or the
parent company). TAT Industries holds 58.7% out of TATs shares, as
of December 31, 2008.
|
|
f.
|
Acquisition
of Bental Industries Ltd.
|
|
On
August 18, 2008, following a series of transactions explained below, TAT acquired 70%
control in Bental Industries Ltd. (Bental), an Israeli company that is a
leading supplier of innovative motion technologies for ground and aviation applications
to the defense and commercial industries. This acquisition expands TATs product
lines as well as increase its operations in the military field while penetrating into new
growing markets.
|
|
On
March 27, 2008, TAT entered into an agreement with Bental Investments Cooperative
Agricultural Society Ltd., (Bental Investments), to purchase from it 27% of
the outstanding shares of Bental, together with a call and put option for another 18% of
the outstanding shares of Bental held by Bental Investments. The call option, which was
exercised on March 30, 2009, was for a period of four years commencing January 1, 2009
for an exercise price $2,250, and the put option was for a period of two years commencing
January 1, 2011 for $2,138 (both subject to certain exchange rate adjustments). The
exercise prices carried interest of 2% per annum.
|
|
On
April 15, 2008, TAT entered into an agreement to purchase an additional 10% of the
outstanding shares of Bental from Mivtach Shamir Investments (1993) Ltd., (Mivtach),
subject to the completion of the acquisition from Bental Investment.
|
|
Following
approvals received, the foregoing transactions with Bental Investments and Mivtach were
consummated on May 21, 2008, as a result of which TAT paid in cash a total of $5,144
(comprised of $3,727 to Bental Investments, $1,380 to Mivtach, and $37 for transaction
costs).
|
|
On
August 18, 2008, following the approval of the shareholders meeting of TAT Industries
(the parent company), TAT acquired an additional 15% shareholding in Bental from TAT
Industries for a cash consideration of $1,893, which was based on the price agreed for
the shares in the above transactions.
|
F - 10
|
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands (except share and per share data)
|
NOTE 1 GENERAL
(Cont.)
|
f.
|
Acquisition
of Bental Industries Ltd. (cont.)
|
|
The
acquisition of Bental shares was financed by a $5 million loan received from Bank Mizrahi
and TATs resources. See also Note 8.
|
|
The
agreement with Bental Investment also provides for the payment of additional
consideration by TAT in the event that during the three year period following the closing
of the transaction TAT consummates an exit, as such term is defined in the
agreement, in such event, Bental Investments will be entitled to additional consideration
for the shares and call option shares (if purchased) equal to a certain percentage of the
difference between the price per share that TAT paid for such shares and the price per
share paid in the exit transaction (30% if the exit is within one year of the closing,
20% if the exit is within two years of the closing and 10% if the exit is within three
years of the closing).
|
|
The
acquisition of Bental has been accounted for using the purchase method of accounting as
determined in SFAS No. 141, Business Combinations, as step acquisitions of
37% as of May 21, 2008, and the remaining 33% as of August 18, 2008. The acquisition of
the 15% from TAT Industries was recorded based on the carrying value of the investment in
Industries books of $1,501 (the difference of $392 was recorded to retained earnings).
The liability for 18% call/put option of $2,183 was recorded based on based on EITF
00-04, Majority Owners Accounting for a Transaction in the Shares of a
Consolidated Subsidiary and a Derivative Indexed to the Noncontrolling Interest in that
Subsidiary, as a purchase and financing transaction, since the risks and rewards of
owning the 18% interest have been purchased by TAT. According to the EITF 00-04, TAT
recorded $28 of accrued interest under the call/put option to interest expense during
2008.
|
F - 11
|
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands (except share and per share data)
|
NOTE 1 GENERAL
(Cont.)
|
f.
|
Acquisition
of Bental Industries Ltd. (cont.)
|
|
The
total purchase price of $9,262 has been allocated to the assets acquired and the
liabilities assumed based on the estimated fair value on August 18, 2008 (taking into
account the short time between the transactions, management believes that the difference
in the fair value of assets at May 21 and August 18 is insignificant), as follows:
|
|
|
August 18, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
Cash acquired
|
|
|
$
|
7,025
|
|
|
Other current assets
|
|
|
|
8,535
|
|
|
Property and equipment
|
|
|
|
2,246
|
|
|
|
|
|
|
Intangible Assets:
|
|
|
|
Intangible assets (1)
|
|
|
|
1,446
|
|
|
Goodwill (2)
|
|
|
|
1,185
|
|
|
|
|
|
|
Total assets acquired
|
|
|
|
20,437
|
|
|
|
|
|
|
|
|
|
|
Liabilities assumed:
|
|
|
|
Current liabilities
|
|
|
|
7,244
|
|
|
Long-term liabilities
|
|
|
|
929
|
|
|
|
|
|
|
|
|
|
|
8,173
|
|
|
|
|
|
|
Minority interest
|
|
|
|
3,002
|
|
|
|
|
|
|
Net assets acquired
|
|
|
$
|
9,262
|
|
|
|
|
|
|
(1)
|
The
intangible assets acquired of $1,446, consisting of customer base of $878
and order backlog of $568, have been valued using the Income Approach on
the basis of the present value of cash flows attributable to the asset
over their expected future life of 5 and 0.4 years, respectively, and are
amortized based on a straight-line basis.
|
|
(2)
|
The
excess purchase price of $1,185 over the net amounts assigned to assets
acquired and liabilities assumed is recognized as goodwill. The goodwill
is not deductible for tax purposes.
|
|
The
intangible assets and goodwill were assigned to the OEM Electric Motion systems
segment, see Note 13.
|
F - 12
|
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands (except share and per share data)
|
NOTE 1 GENERAL
(Cont.)
|
f.
|
Acquisition
of Bental Industries Ltd. (cont.)
|
|
The
results of Bental are included in TATs consolidated financial statements from the
date of acquisition (August 18, 2008) through December 31, 2008. Set forth below is
unaudited pro forma financial information for the two years ended December 31, 2008,
based on the assumption that the acquisition of Bental had been consummated on the first
day of each of the years ended December 31, 2008 and 2007, including the effect of
amortization of intangible assets from such dates.
|
|
The
historical consolidated financial information has been adjusted to give effect to pro
forma adjustments that are (1) directly attributable to the acquisition, (2) factually
supportable, and (3) expected to have a continuing impact on the combined results. The
unaudited pro forma financial information is presented for comparative purposes only, it
is not necessarily indicative of the operating results that would have occurred if the
acquisition had been completed at January 1, 2007 and January 1, 2008, and it is not
necessary indicative of future operating results.
|
|
The
unaudited pro forma information is as follows:
|
|
|
Year ended
December 31, 2008
|
Year ended
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
|
$
|
125,683
|
|
$
|
105,049
|
|
|
|
|
|
|
|
|
Net income
|
|
|
$
|
6,930
|
|
$
|
32,723
|
|
|
|
|
|
|
|
|
Basic net earnings per share
|
|
|
$
|
1.059
|
|
$
|
0.516
|
|
|
|
|
|
|
|
|
Diluted net earnings per share
|
|
|
$
|
1.055
|
|
$
|
0.511
|
|
|
|
|
|
|
|
F - 13
|
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands (except share and per share data)
|
NOTE 2
SIGNIFICANT ACCOUNTING POLICIES
|
The
consolidated financial statements have been prepared in accordance with generally
accepted accounting principles in the United States (U.S. GAAP), applied on
consistence basis, unless otherwise indicated below.
|
|
The
preparation of consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates
and assumptions that effect the reported amounts of assets and liabilities and disclose
the nature of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.
|
|
b.
|
Financial
statements in U.S. dollars:
|
|
The
majority of TATs revenues are generated in U.S. dollars (dollar) and a
substantial portion of TATs costs is incurred in dollars. In addition, a
significant portion of TATs financings have been obtained in dollars. Accordingly,
the dollar is the currency of the primary economic environment in which TAT Technologies
Ltd., Limco and TAT GAL Inc. operate and accordingly their functional and reporting
currency is the dollar.
|
|
Transactions
and balances of TAT., Limco and TAT GAL Inc. which are denominated in other currencies
have been remeasured into dollars in accordance with principles set forth in SFAS No. 52
Foreign Currency Translation. All exchange gains and losses from the
remeasurement mentioned above are reflected in the statement of income in financial
expenses, net.
|
|
For
Bental whose functional currency has been determined to be the New Israeli Shekel, assets
and liabilities are translated at year-end exchange rates, and statement of income items
are translated at average exchange rates prevailing during the year. Resulting
translation differences are recorded as a separate component of accumulated other
comprehensive loss in shareholders equity.
|
|
c.
|
Principles
of consolidation:
|
|
The
consolidated financial statements include the accounts of TAT and its subsidiaries.
Intercompany balances and transactions, including profits from intercompany sales not yet
realized outside TAT, have been eliminated upon consolidation.
|
|
Cash
equivalents are short-term highly liquid investments that are readily convertible to cash
with original maturities of three months or less.
|
F - 14
|
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands (except share and per share data)
|
NOTE 2
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
e.
|
Marketable
securities:
|
|
Short-term
investments are accounted for in accordance with SFAS No. 115, Accounting for
Certain Investment in Debt and Equity Securities. Management determines the
classification of its investments in marketable debt and equity securities at the time of
purchase and reevaluates such determinations as of each balance sheet date. As of
December 31, 2008, all marketable securities covered by SFAS No. 115, were designated as
available-for-sale. Securities available-for-sale are carried at fair value, with the
unrealized gains and losses, net of income taxes, reported as a separate component of
shareholders equity classified as other comprehensive income (loss). Realized gains
and losses and declines in market value judged to be other than temporary are included in
other income. The unrealized loss of $90 relates to short-term investments deemed to be
temporary and the unrealized loss position is less than twelve months (net of taxes). Dividends
are also included in other income. TATs short-term investments consist of auction
rate tax-exempt securities and corporate and government bonds with maturities of one to
four years.
|
|
The
fair value of short-term investments is determined by quoted market prices of the
underlying securities (other than auction rate tax exempt securities see below).
For purposes of determining gross realized gains or losses, the cost of the security is
determined based on specific identification.
|
|
Auction
rate securities are variable rate debt securities. While the underlying security has a
long-term nominal maturity, the interest rate is reset through auctions that are
typically held every 7, 28, or 35 days. The securities trade at par and are callable at
par on any interest payment date at the option of the issuer. Interest is paid at the end
of each auction period. TAT classified these securities as short-term available-for-sale
because it intends to liquidate them as the need for working capital arises in the
ordinary course of business and is able to liquidate them or roll them over to the next
reset period. During the first three months of 2008 TAT determined to liquidate its
holdings of variable rate debt securities and in January, February and October 2008 it
sold approximately 91% of its auction rate tax-exempt securities portfolio at par and
reinvested the proceeds in high-grade corporate debt, governmental debt instruments and
money market funds.
|
|
The
remaining balance of $2.25 million at December 31, 2008 will be sold as the market allows. Should
management determine that these securities were to be held longer than one year then they
would be classified as long-term securities.
|
|
In
September 2007, the FASB issued SFAS No. 157, Fair Value Measurements, or
SFAS 157. Among other requirements, SFAS 157 defines fair value and establishes a
framework for measuring fair value and also expands disclosure about the use of fair
value to measure assets and liabilities. SFAS 157 is effective beginning the first fiscal
year that begins after November 15, 2007. TAT adopted SFAS 157 during the first
quarter of 2008. Although the adoption of SFAS 157 did not materially
impact TATs financial condition, results of operations, or cash flows, TAT is now
required to provide additional disclosures as part of the financial statements.
|
F - 15
|
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands (except share and per share data)
|
NOTE 2
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
e.
|
Marketable
securities (cont.):
|
|
SFAS
157 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in
measuring fair value. These tiers include: Level 1, defined as observable inputs
such as quoted prices in active markets; Level 2, defined as inputs other than quoted
prices in active markets that are either directly or indirectly observable; and Level 3,
defined as unobservable inputs in which little or no market data exists, therefore
requiring an entity to develop its own assumptions.
|
|
As of December 31, 2008, TAT held
certain assets that are required to be measured at fair value on a recurring basis,
including money market funds and available-for-sale securities. TATs
available-for-sale securities include auction-rate securities which consist of bonds with
an auction reset feature whose underlying assets are Oklahoma state municipal bonds. As a
result of failed auctions, these securities are currently illiquid through the normal
auction process and quoted market prices and other observable market data are not
available or diminished.
|
|
Accordingly,
these investments were valued using pricing models based on the net present value of
estimated future cash flows as of December 31, 2008. These securities were also compared,
when possible, to other observable market data with similar characteristics to the
securities held by TAT.
|
|
TATs
financial assets measured at fair value on a recurring basis subject to the disclosure
requirements of SFAS 157 at December 31, 2008, were as follows (in thousands):
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Observable
Inputs
(Level 3)
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money Market funds (included
|
|
|
|
in cash and cash equivalents)
|
|
|
$
|
18,807
|
|
$
|
-
|
|
$
|
-
|
|
$
|
18,807
|
|
|
Auction-rate securities
|
|
|
|
-
|
|
|
2,250
|
|
|
-
|
|
|
2,250
|
|
|
Municipal bonds
|
|
|
|
9,050
|
|
|
-
|
|
|
-
|
|
|
9,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
27,857
|
|
$
|
2,250
|
|
$
|
-
|
|
$
|
30,107
|
|
|
|
|
|
|
|
|
|
|
|
F - 16
|
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands (except share and per share data)
|
NOTE 2
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
TATs
accounts receivable balances are due from companies primarily in the airline and defense
industries. Credit is extended based on evaluation of a customers financial
condition and, generally, collateral is not required. Accounts receivable from sales of
services are typically due from customers within 30 days. Accounts receivable balances
are stated at amounts due from customer net of an allowance for doubtful accounts.
Accounts outstanding longer than the contractual payments terms are considered past due.
TAT determines its allowance by considering a number of factors, including the length of
time accounts receivable are past due, TATs previous loss history, the customers
current ability to pay its obligation to TAT, and the condition of the general economy
and the industry as a whole. TAT writes-off accounts receivable when they become
uncollectible and payments subsequently received on such receivables are credited to the
allowance for doubtful accounts.
|
|
Inventories
are stated at the lower of cost or market value.
|
|
Inventories
write-offs are provided to cover risks arising from dead and slow-moving items,
discontinued products and excess inventories according to revenue forecasts.
|
|
Cost
is determined as follows:
|
|
Raw
materials and components using the average cost and the first-in, first-out (FIFO)
methods.
|
|
Work
in process represents the cost of raw materials, components and, manufacturing
costs which include direct and indirect allocable costs. Cost of raw materials and
components is determined as described above. Manufacturing costs are determined on
average basis.
|
|
Because
TAT sells products and services related to airplane accessories (heat transfer equipment,
APUs, propellers, and landing gear) for airplanes that can be in service for 20 to
50 years, it must keep a supply of such products and parts on hand while the airframes
are in use. TAT writes down its inventory for estimated obsolescence and unmarketable
inventory equal to the difference between the cost of inventory and estimated market
value based upon assumptions about future demand and market conditions. If actual market
conditions are less favorable than those anticipated, inventory adjustments may be
required. TAT believes that these estimates are reasonable and historically have not
resulted in material adjustments in subsequent periods when the estimates are adjusted to
actual amounts.
|
F - 17
|
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands (except share and per share data)
|
NOTE 2
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
h.
|
Property,
plant and equipment:
|
|
Property,
plant and equipment are stated at cost, net of accumulated depreciation. Depreciation is
calculated using the straight-line method over the estimated useful lives of the assets.
The annual rates of depreciation are as follows:
|
|
|
years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings
|
25 - 39
|
|
Machinery and equipment
|
3 - 15
|
|
Motor vehicles
|
5 - 7
|
|
Office furniture and equipment
|
3 - 20
|
|
Leasehold
improvements are amortized using the straight line method over the period of the lease
contract, provided that this period does not exceed the useful life of the asset.
|
|
Fixed
assets not in use and held for sale, are stated at the lower of net cost or estimated
realizable value.
|
|
Expenditures
for maintenance and repairs are charged to expense as incurred, while renewals and
betterments of a permanent nature are capitalized.
|
|
As
a governmental incentive for industrial companies in Israel, the Investment Center,
which is a branch of the Israel Ministry of Industry and Trade, permits industrial
companies to submit a request to qualify as an Approved Enterprise. An
Approved Enterprise is entitled to certain benefits in respect of capital investments.
The benefits may be in the form of reduced tax rates and of capital grants received as a
percentage of the investments of the Approved Enterprise. The amount of a capital grant
is determined as a percentage of the Approved Enterprise investment in property, plant
and equipment.
|
|
These
capital grants are non-royalty bearing and are not conditioned on the results of
operations. As the capital grants are a direct participation in the cost of the
acquisition of property, plant and equipment, they are offset against the cost of
property, plant and equipment.
|
F - 18
|
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands (except share and per share data)
|
NOTE 2
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
In
accordance with SFAS No. 142 Goodwill and Other Intangible Assets, intangible
assets subject to amortization are amortized over their useful life, using the straight
line method of amortization.
|
|
The
following is the expected useful life of TATs intangible assets:
|
|
|
Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Compete agreements
|
3
|
|
Lease at below market prices
|
2.5
|
|
Existing costumer relationship
|
5 - 10
|
|
Consulting services agreement
|
0.3
|
|
Trade name
|
10
|
|
Certificates
|
7
|
|
Order backlog
|
0.4
|
|
Amortization
expense amounted to $960, $474 and $477 for the years ended December 31, 2008, 2007 and
2006, respectively.
|
|
k.
|
Impairment
of long-lived assets:
|
|
TATs
long-lived assets (except goodwill see l below) are reviewed for impairment in
accordance with the provisions set fourth in SFAS No. 144 Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS No. 144) whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a comparison of
the carrying amount of an asset to the future undiscounted cash flows expected to be
generated by the assets. If such assets are considered to be impaired, the impairment to
be recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. During the years ended December 31, 2008, 2007
and 2006, no impairment losses have been recognized.
|
F - 19
|
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands (except share and per share data)
|
NOTE 2
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
Goodwill
is the excess of the cost of an acquired entity over the amounts assigned to assets
acquired and liabilities assumed in a business combination. Goodwill is not amortized. In
accordance with SFAS No. 142, Goodwill Other Intangible Assets (SFAS 142),
TAT evaluates the carrying value of goodwill during the fourth quarter of each year and
between annual evaluations if events occur or circumstances change that would indicate a
possible impairment.
|
|
In
evaluating whether goodwill was impaired, TAT compared the fair value of the reporting
units to which goodwill is assigned to their carrying value (Step one of the impairment
test). In calculating fair value, TAT used a weighting of the valuations calculated using
market multiples and the income approach. The income approach is a valuation technique
under which TAT estimates future cash flows using the reporting units financial
forecasts. Future estimated cash flows are discounted to their present value to calculate
fair value. The market approach establishes fair value by comparing TAT to other publicly
traded guideline companies or be analysis of actual transactions of similar businesses or
assets sold. The summation of TATs reporting units fair values must be
compared to TATs market capitalization as of the date of the impairment test. In
the situation where a reporting units carrying amount exceeds its fair value, the
amount of the impairment loss must be measured. The measurement of the impairment (Step
two of the impairment test) is calculated by determining the implied fair value of a
reporting units goodwill. In calculating the implied fair value of goodwill, the
fair value of the reporting unit is allocated to all of the other assets and liabilities
of that unit based on their values. The excess of the fair value of a reporting unit over
the amount assigned to its other assets and liabilities is the implied fair value of
goodwill. The goodwill impairment is measured as the excess of the carrying amount of
goodwill over its implied fair value. The evaluation performed during 2007 identified
$143 of non-cash goodwill impairment charge. The evaluations performed during 2008 and
2006 did not identify any goodwill impairment losses.
|
|
Changes
in goodwill during the years 2008 and 2007 are as follows:
|
|
|
2008
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, at January 1
|
|
|
$
|
4,780
|
|
$
|
4,923
|
|
|
Impairment loss
|
|
|
|
-
|
|
|
(143
|
)
|
|
Acquired - Bental - Note 1 f
|
|
|
|
1,185
|
|
|
|
|
|
Acquired -Limco
|
|
|
|
34
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,999
|
|
$
|
4,780
|
|
|
|
|
|
|
|
F - 20
|
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands (except share and per share data)
|
NOTE 2
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
TAT
generates its revenues from the sale of products and systems (The OEM segments) and from
providing MRO services (remanufacture, repair and overhaul services and long-term service
contracts) and parts services.
|
|
Revenues
from the sale of products and services are recognized in accordance with Staff Accounting
Bulletin No. 104, Revenue Recognition in Financial Statements (SAB No.
104) when persuasive evidence of an arrangement exists, delivery of the product has
occurred, provided the collection of the resulting receivable is probable, the price is
fixed or determinable and no significant obligation exists. TAT does not grant a right of
return.
|
|
Revenues
from product sales are recognized when product is shipped to the customer and title
passes to the customer.
|
|
Revenues
from multi-year, fixed price contracts for OEM customers are recognized when a product is
shipped (and title passes) to the customer. Management provides for losses, if expected
for the remaining portion of such contracts. For the years ended December 31, 2008, 2007
and 2006, no losses have been recognized for such fixed price contracts.
|
|
Revenues
from remanufacture, repair and overhaul (MRO) services are recognized as services are
performed, at the time when the customer-owned material is shipped back to the customer.
|
|
Revenues
from maintenance contracts are accounted according to FASB Technical Bulletin No. 90-1
(Amended), Accounting for Separately Priced Extended Warranty and Product
Maintenance Contracts. Accordingly, revenues from maintenance contracts are
recognized over the contract period in proportion to the costs expected to be incurred in
performing services under the contract. TAT estimates the costs that are expected to be
incurred based on its experience with the aggregate costs incurred and to be incurred on
contracts of this nature. The cost incurred related to the maintenance contracts are not
incurred on a straight-line basis, as the timing to provide the maintenance services is
dependent on when parts under these contracts require maintenance, therefore TAT accrue
revenue based on anticipated margins per contract as costs are incurred. These revenues
are then compared to actual results and adjusted to either deferred revenue for results
greater than historical estimates or expensed in those cases of performance less than
historical estimates. These accounts are reviewed monthly and adjusted as needed based on
cost structures.
|
|
Revenues
from royalties from sales of products developed with TATs intellectual property,
technology and technical assistance are recognized when the related sales are made.
|
F - 21
|
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands (except share and per share data)
|
NOTE 2
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
n.
|
Shipping
and handling costs:
|
|
Shipping
and handling costs billed to customers are included in revenues. The cost of shipping and
handling products is included in the costs of revenues.
|
|
TAT
provides warranties for its products and services ranging from one to five years, which
vary with respect to each contract and in accordance with the nature of each specific
product.
|
|
TAT
estimates the costs that may be incurred under its warranty and records a liability in
the amount of such costs at the time the product is shipped. TAT periodically assesses
the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.
|
|
p.
|
Research
and development:
|
|
Research
and development costs net of grants and participations received are charged to expenses
as incurred.
|
|
Bental
received royalty-bearing grants from the Israeli Chief Scientists Office (OCS) for
the purpose of partially funding approved research and development projects. The grants
are not to be repaid, but instead Bental is obliged to pay royalties as a percentage of
future sales if and when sales from the funded projects will be generated. These grants
are recognized as a deduction from research and development costs at the time Bental is
entitled to such grants on the basis of the research and development costs incurred.
Since the payment of royalties is not probable when the grants are received, TAT
recognizes royalty expenses, when the related revenues are recognized, as part of cost of
revenues. For more information regarding OCS royalties commitment, see Note 9 b (2).
|
|
Income
taxes are accounted for in accordance with SFAS No. 109, Accounting for Income Taxes (SFAS
No. 109). This statement prescribes the use of the liability method, whereby
deferred tax assets and liability account balances are determined based on temporary
differences between financial reporting and tax bases of assets and liabilities and for
tax loss carryforwards. Deferred taxes are measured using the enacted laws and tax rates
that will be in effect when the differences are expected to reverse. TAT provides a
valuation allowance, if necessary, to reduce deferred tax assets to their estimated
realizable value, see Note 12j.
|
|
Results
for tax purposes are measured and reflected in NIS. As explained in b above, the
consolidated financial statements are presented in U.S. dollars. In accordance with
paragraph 9(f) of SFAS No. 109, TAT has not provided deferred income taxes on the
differences resulting from changes in exchange rate and indexation.
|
F - 22
|
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands (except share and per share data)
|
NOTE 2
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
TAT
did not provide for deferred taxes attributable to dividend distribution out of retained
tax-exempt earnings from Approved Enterprise plans (see Note 12 c), since it
has no intention to declare dividends out of such tax exempt income. Management considers
such retained earn to be essentially permanent in duration.
|
|
r.
|
Concentrations
of credit risk:
|
|
Financial
instruments that potentially subject TAT to concentrations of credit risk consist
principally of cash and cash equivalents, marketable securities and accounts receivable.
|
|
Cash
and cash equivalents are deposited with major banks in Israel and the United States. Such
deposits in the United States may be in excess of insured limits and are not insured in
other jurisdictions. Management believes that the financial institutions that hold TATs
cash and cash equivalents, are financially sound, and, accordingly, minimal credit risk
exists with respect to these financial instruments.
|
|
TATs
marketable securities include investment in debentures and in shares. Management believes
that the companies that issued the debentures and the shares are financially sound, the
portfolio is well diversified, and accordingly, minimal credit risk exists with respect
to the marketable securities.
|
|
TATs
accounts receivable are derived mainly from sales to customers in the United States,
Israel and Europe. TAT generally does not require collateral, however, in certain
circumstances; TAT may require letters of credit. Management believes that credit risks
relating to accounts receivable are minimal since the majority of TATs customers
are financially sound. TAT performs ongoing credit evaluation of their customersfinancial
condition. The allowance for doubtful accounts is determined with respect to specific
debts that are doubtful of collection.
|
|
The
allowance for doubtful accounts (income) expenses for the years ended December 31, 2008,
2007 and 2006, was ($1), ($125), and ($116), respectively.
|
|
TAT
entered into foreign exchange forward contracts and option strategies (together: derivative
instruments) intended to protect against the increase in value of forecasted
non-dollar currency cash flows. These derivative instruments are designed to provide an
economic hedge to TATs non-dollar currency exposure (see Note 2 u below).
|
F - 23
|
TAT TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
U.S. dollars in thousands (except share and per share data)
|
NOTE 2
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
TATs
severance pay for its Israeli employees is calculated pursuant to Israeli Severance Pay
Law based on the most recent salary of the employees multiplied by the number of years of
employment as of the balance sheet date. The liability is presented on the undiscounted
basis. TAT records an expense for the net increase in its severance liability. TATs
liability for all of its Israeli employees is fully covered for by monthly deposits with
severance pay funds, insurance policies, Mivtahim Social Insurance Institution Ltd. (Mivtahim)
and by an accrual.
|
|
The
liability covered by deposits with Mivtahim is irrevocably transferred to Mivtahim.
Accordingly, neither the amounts accumulated with Mivtahim, nor the corresponding
liabilities for severance pay are reflected in the consolidated balance sheet.
|
|
The
deposited funds include profits accumulated up to the balance sheet date. The deposited
funds may be withdrawn only upon the fulfillment of the obligation pursuant to Israeli
Severance Pay Law or labor agreements. The value of the deposited funds is based on the
cash surrendered value of these policies and includes profits (or loss) accumulated
through the balance sheet date.
|
|
Severance
expense was $441, $408 and $293 for the years ended December 31, 2008, 2007 and 2006,
respectively.
|
|
Limco
Inc. sponsors a 401(K) profit sharing plan covering substantially all of its employees.
The plan permits the employer to contribute a discretionary amount for a plan year, which
the employer designates as qualified non-elective contribution. Contributions to plan by
TAT were $204, $155 and $176 for the years ended December 31, 2008, 2007 and 2006,
respectively.
|
|
t.
|
Fair
value of financial instruments:
|
|
SFAS No. 107
Disclosures about Fair Value of Financial Instruments requires disclosure of
the estimated fair value of an entitys financial instruments. Such disclosures,
which pertain to TATs financial instruments, do not purport to represent the
aggregate net fair value of TAT. The carrying value of cash and cash equivalents,
accounts receivable and accounts payable approximated fair value because of the short
maturity of those instruments.
|
|
The
estimated fair value of financial instruments has been determined by TAT using available
market information and valuation methodologies. Considerable judgment is required in
estimating fair values. Accordingly, the estimates may not be indicative of the amounts
TAT could realize in a current market exchange.
|
|
As
for the fair value for marketable securities classified as available-for-sale, see e
above.
|
F - 24
TAT
TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S.
dollars in thousands (except share and per share data)
|
NOTE 2
SIGNIFICANT
ACCOUNTING POLICIES (Cont.)
|
t.
|
Fair
value of financial instruments (cont.):
|
|
TATs
outstanding debt amount as included in the financial statements is equal to its fair
market value.
|
|
The
fair values of long-term liabilities were estimated by discounting the future cash flows,
using the rate currently available for liabilities of similar terms and maturity. The
carrying amount of TATs long-term liabilities approximates their fair value.
|
|
u.
|
Derivative
financial instruments
|
|
As
part of its hedging strategy, TAT enters into forward exchange contracts in order to
protect TAT from the risk that the eventual dollar cash flows from the sale of products
to international customers will be adversely affected by changes in exchange rates.
|
|
TAT
also enters into forward exchange contracts and options strategies in order to limit the
exposure to exchange rate fluctuation associated with payroll expenses mainly incurred in
NIS. TAT elected not to follow the designation and documentation processes required to
qualify for the hedge accounting method under SFAS 133, Accounting for Derivative
Instruments and Hedging Activities, and any gain or loss derived from such
instruments is recognized immediately as financial expenses, net.
|
|
As
of December 31, 2008, TAT had forward contracts with a notional amount of approximately
$5,400 to purchase NIS. These foreign exchange forward put and call options have
maturities of 12 months or less.
|
|
The
fair value of the foreign exchange contracts and the options was not significant as of
December 31, 2008.
|
|
v.
|
Basic
and diluted net income per share:
|
|
Basic
net income per share is computed based on the weighted average number of ordinary shares
outstanding during each year. Diluted net income per share includes the effect of stock
option warrants outstanding during the year, in accordance with SFAS No. 128, Earnings
Per Share (SFAS No. 128), using the treasury stock method.
|
|
w.
|
Registration
Rights Agreement
|
|
Limco
granted TAT the right to require registration for resale of the shares of common stock
TAT holds in Limco under the Securities Act of 1933, as amended. TAT may sell all or some
of the shares of the subsidiarys common stock that it owns or distribute those
shares to its shareholders. Pursuant to FSP EITF 00-19-2, Accounting for
Registration Payment Arrangements (FSP), which addresses an issuers
accounting for registration payment arrangements, Limco concluded that no obligation
should be recorded related to the registration rights.
|
F - 25
TAT
TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S.
dollars in thousands (except share and per share data)
|
NOTE 2 SIGNIFICANT ACCOUNTING
POLICIES (Cont.)
|
x.
|
Impact
of recently issued Accounting Standards:
|
|
1.
|
In
December 2007, the FASB issued SFAS No. 141 (Revised 2007) Business
Combinations, a revision of the original SFAS No. 141". This
statement requires an acquirer to recognize the assets acquired, the
liabilities assumed, and any noncontrolling interest in the acquirer at the
acquisition date, measured at their fair values as of that date, with limited
exceptions specified in the Statement. That replaces the original Statement 141s
cost-allocation process, which required the cost of an acquisition to be
allocated to the individual assets acquired and liabilities assumed based on
their estimated fair values. TAT is required to adopt the revised SFAS No. 141
on January 1, 2009, in relation to future business combinations. TAT is
currently evaluating the potential impact of the revised SFAS No. 141 on
TATs consolidated financial statements.
|
|
2.
|
In
December 2007, the FASB issued SFAS No. 160 Noncontrolling Interests in
Consolidated Financial Statements an amendment of ARB No. 51. This
statement establishes accounting and reporting standards for noncontrolling
interests in subsidiaries and for the deconsolidation of subsidiaries and
clarifies that a noncontrolling interest in a subsidiary is an ownership
interest in the consolidated entity that should be reported as equity in the
consolidated financial statements. SFAS No. 160 also required expanded
disclosures that clearly identify and distinguish between the interests of the
parent owners and the interests of the noncontrolling owners of a subsidiary.
TAT is required to adopt SFAS No. 160 on January 1, 2009. TAT is currently
evaluating the potential impact of the SFAS No. 160 on TATs consolidated
financial statements.
|
|
3.
|
In
March 2008, the FASB issued SFAS No. 161, Disclosure about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No.
133, (SFAS No. 161). This statement requires that objectives for
using derivative instruments be disclosed in terms of underlying risk and
accounting designation. TAT is required to adopt SFAS No. 161 on January 1,
2009. The adoption of SFAS 161 is not expected to have a material impact
on TATs consolidated financial statements.
|
|
Certain
financial statement data for prior years has been reclassified to conform to current year
financial statement presentation. The classification did not have an impact on net income
or shareholders equity.
|
F - 26
TAT
TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S.
dollars in thousands (except share and per share data)
|
NOTE 3 INVENTORIES
|
Inventories
are composed of the following:
|
|
|
December 31,
|
|
|
2008
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw materials and components
|
|
|
$
|
10,179
|
|
$
|
5,940
|
|
|
Work in process
|
|
|
|
17,503
|
|
|
15,340
|
|
|
Spare parts
|
|
|
|
7,251
|
|
|
6,862
|
|
|
Finished goods
|
|
|
|
81
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
35,014
|
|
$
|
28,189
|
|
|
|
|
|
|
|
|
Raw
materials and components are net of reserve for slow moving and obsolete inventories in
the amount of $2,036 and $1,768 at December 31, 2008 and 2007, respectively.
|
NOTE 4 PROPERTY,
PLANT AND EQUIPMENT, NET
|
Composition
of assets, grouped by major classifications, is as follows:
|
|
|
December 31,
|
|
|
2008
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost:
|
|
|
|
|
|
|
|
|
|
Land and buildings (1)
|
|
|
$
|
3,734
|
|
$
|
2,812
|
|
|
Machinery and equipment (2)
|
|
|
|
32,875
|
|
|
26,038
|
|
|
Motor vehicles
|
|
|
|
1,873
|
|
|
1,655
|
|
|
Office furniture and equipment
|
|
|
|
1,804
|
|
|
2,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,286
|
|
|
32,607
|
|
|
|
|
|
|
Less: Accumulated depreciation
|
|
|
|
25,099
|
|
|
20,680
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciated cost
|
|
|
$
|
15,187
|
|
$
|
11,927
|
|
|
|
|
|
|
|
|
Depreciation
expenses amounted to $2,393, $1,557 and $1,332 for the years ended December 31, 2008,
2007 and 2006, respectively.
|
|
(1)
|
Includes
lease rights to land in the amount of $1 under a sub-lease agreement with TAT
Industries. The lease period ends in 2020 and includes a renewal option if TAT
Industries exercises the option granted by the Israel Land Administration. See
also Note 7a.
|
|
Registration
with the Land Registrant of the transfer of sub-lease rights from TAT Industries to TAT
has not yet been finalized due to technical reasons.
|
|
(2)
|
The
cost in 2008 is net of investment grants received by Bental (mainly for
instruments, machinery and equipment) in the amount of $299 as of December 31,
2008. There were no investment grants received in 2007.
|
|
Liens
on property, plant and equipment is discussed at Note 9f.
|
F - 27
TAT
TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S.
dollars in thousands (except share and per share data)
|
NOTE 5 INTANGIBLE
ASSETS, NET
|
|
December 31,
|
|
|
2008
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost:
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
|
$
|
2,815
|
|
$
|
1,937
|
|
|
Order backlog
|
|
|
|
568
|
|
|
-
|
|
|
Non-compete agreement
|
|
|
|
653
|
|
|
653
|
|
|
Trade name
|
|
|
|
128
|
|
|
128
|
|
|
Others
|
|
|
|
179
|
|
|
179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,343
|
|
|
2,897
|
|
|
|
|
|
|
|
|
Accumulated amortization:
|
|
|
|
Customer relationships
|
|
|
|
620
|
|
|
485
|
|
|
Order backlog
|
|
|
|
568
|
|
|
-
|
|
|
Non-compete agreement
|
|
|
|
653
|
|
|
543
|
|
|
Trade name
|
|
|
|
128
|
|
|
30
|
|
|
Others
|
|
|
|
179
|
|
|
130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,148
|
|
|
1,188
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized cost
|
|
|
$
|
2,195
|
|
$
|
1,709
|
|
|
|
|
|
|
|
|
b.
|
Based
on the intangible assets in service as of December 31, 2008, estimated
amortization expense for each of the next five years and thereafter is as
follows:
|
|
Year ended December 31,
|
Amortization
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
$
|
393
|
|
|
2010
|
|
|
|
393
|
|
|
2011
|
|
|
|
393
|
|
|
2012
|
|
|
|
388
|
|
|
2013
|
|
|
|
315
|
|
|
Thereafter
|
|
|
|
313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,195
|
|
|
|
|
|
F - 28
TAT
TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S.
dollars in thousands (except share and per share data)
|
NOTE 6 OTHER
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
|
|
December 31,
|
|
|
2008
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employees and payroll accruals
|
|
|
$
|
3,635
|
|
$
|
2,457
|
|
|
Government authorities
|
|
|
|
608
|
|
|
177
|
|
|
Related parties
|
|
|
|
163
|
|
|
55
|
|
|
Advances from customers
|
|
|
|
525
|
|
|
-
|
|
|
Liability with respect to non-compete agreement
|
|
|
|
-
|
|
|
145
|
|
|
Warranty provision
|
|
|
|
699
|
|
|
784
|
|
|
Sales rebates
|
|
|
|
290
|
|
|
142
|
|
|
Accrued royalties
|
|
|
|
178
|
|
|
179
|
|
|
Other accrued expenses
|
|
|
|
1,262
|
|
|
371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,360
|
|
$
|
4,310
|
|
|
|
|
|
|
|
NOTE 7
TRANSACTIONS WITH RELATED PARTIES
|
a.
|
Transactions
with TAT Industries:
|
|
|
Year ended December 31,
|
|
|
2008
|
2007
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees
|
|
|
$
|
50
|
|
$
|
50
|
|
$
|
50
|
|
|
|
|
|
|
|
|
|
|
Other manufacturing costs
|
|
|
$
|
4
|
|
$
|
5
|
|
$
|
36
|
|
|
|
|
|
|
|
|
|
|
Lease expenses (1)
|
|
|
$
|
329
|
|
$
|
323
|
|
$
|
316
|
|
|
|
|
|
|
|
|
|
|
(1)
|
During
2000, TAT entered into a lease agreement with TAT Industries for a period of 25
years. According to the agreement, TAT leases from TAT Industries the factory
premises for an annual amount of approximately $300, increased by 2% annually,
subject to a revaluation based on market value every five years. TAT is
entitled to a one-time right of termination of the agreement after 10 years.
|
|
During
2005, a revaluation of the lease agreement was prepared by a valuation consultant,
determining the annual lease fee as $310.
|
|
b.
|
Balances
with related parties:
|
|
|
December 31,
|
|
|
2008
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TAT Industries - current account (1)
|
|
|
$
|
383
|
|
$
|
576
|
|
|
|
|
|
|
|
|
(1)
|
The
balance mainly consists of Value Added Tax refund to be collected by TAT
Industries on behalf of TAT, since TAT Industries and TAT are reporting to the
Value Added Tax Authorities on a consolidated basis. The amount is linked to
the Israeli Consumer Price Index.
|
F - 29
TAT
TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S.
dollars in thousands (except share and per share data)
|
NOTE 7
TRANSACTIONS WITH RELATED PARTIES (Cont.)
|
|
|
Year ended December 31,
|
|
|
|
2008
|
2007
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
c.
|
Commissions to a company owned by certain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
former shareholders (see Note 9a (1))
|
|
|
$
|
69
|
|
$
|
442
|
|
$
|
387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fee to shareholders (see f and g
|
|
|
|
|
below)
|
|
|
$
|
100
|
|
$
|
250
|
|
$
|
250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental and other services (see h below)
|
|
|
$
|
170
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries of former principal owners (see d and
|
|
|
|
|
e below)
|
|
|
$
|
752
|
|
$
|
533
|
|
$
|
489
|
|
|
|
|
|
|
|
|
|
|
|
d.
|
The
former Chairman of the Board of Directors and the former Vice Chairman of the
Board of Directors were entitled each to a bonus of 2.5% of the annual
consolidated operating income, in excess of $500. Bonus expenses were $ 66,
$462 and $518 in 2008, 2007 and 2006, respectively, and were recorded as part
of the general and administrative expenses.
|
|
e.
|
As
result of the change in control of TAT Industries shareholders, during
December 2007, TATs Chairman of the Board of Directors (former principal
owner), announced his resignation from his position, effective January 1, 2008,
but he continued his employment, as a consultant to TAT, in accordance with his
employment agreement with TAT, until April 2008. On September 12, 2008, TAT and
the former Chairman of the Board of Directors signed an appendix to the
employment agreement, according to which the employment relationship would be
deemed terminated retroactively, as of January 1, 2008, and TAT would pay the
former Chairman of the Board of Directors, a fixed amount of $ 267 for all the
benefits related to his employment. On
May 19, 2008, TATs Chief Executive Officer and Vice Chairman of the Board of
Directors, announced his resignation from his position effective to that date.
Accordingly, a provision for notice period of $110 was recognized in the statement of
income for the year ended December 31, 2008.
|
|
f.
|
A
former shareholder of TAT provided TAT with management and consulting services
in consideration of the lower of: (i) 3% of the consolidated operating income
in excess of $500, or (ii) $250. Consulting expenses were $250 for each of the
years ended December 31, 2007 and 2006, respectively, and were recorded a part
of the general and administrative expenses. The management and consulting
services agreement expired on December 31, 2007, pursuant to the sale by the
shareholder of the majority of its holding in TAT, during December 2007.
|
|
g.
|
In
February 2009, subsequent to the balance sheet date, TAT entered into
management and consulting services agreement with its ultimate parent company,
for a consideration of $100 per quarter, effective October 1, 2008.
|
|
h.
|
Bental
is engaged in various agreements with its minority shareholders and other
related parties for the rental, maintenance and other services provided to it,
in connection with its plant.
|
F - 30
TAT
TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S.
dollars in thousands (except share and per share data)
|
NOTE 8 LONG-TERM
LOANS
|
|
Currency
|
Interest Rate
December 31, 2008
|
Years of
Maturity
|
December 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term loans (1)
|
|
|
|
$
|
|
|
4.67
|
%
|
|
2011-2013
|
|
$
|
5,000
|
|
|
Long-term loan (2)
|
|
|
|
NIS
|
|
|
4.5
|
%
|
|
2009-2012
|
|
|
124
|
|
|
Long-term loan
|
|
|
|
NIS
|
|
|
6.3
|
%
|
|
2009-2012
|
|
|
214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,338
|
|
|
|
|
|
|
Less - current maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
(150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,188
|
|
|
|
|
|
|
|
|
|
Required
principal payments (including current maturities) as of December 31, 2008, were as
follows:
|
Year
|
Amount
|
|
|
|
|
|
|
|
|
2009
|
|
|
$
|
150
|
|
2010
|
|
|
|
111
|
|
2011
|
|
|
|
815
|
|
2012
|
|
|
|
762
|
|
2013
|
|
|
|
3,500
|
|
|
|
|
|
|
|
|
|
|
|
5,338
|
|
|
|
|
|
(1)
|
Two
loans with original amounts of $2,250 and $2,750, to be repaid in three annual
installments of $750, $750, $3,500, commencing 2011. These loans bear quarterly
interest of Libor + 1.85%
|
|
(2)
|
Linked
to the consumer price index
|
|
TAT
provided certain guarantees and covenants, to secure long-term loans, see Note 9f.
|
F - 31
TAT
TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S.
dollars in thousands (except share and per share data)
|
NOTE 9
COMMITMENTS AND CONTINGENT LIABILITIES
|
a.
|
Commissions
arrangements
|
|
(1)
|
TAT
was committed to pay commissions to a company owned by certain of its former
shareholders for representing the heat exchangers division in North America
(see Note 7c). According to the agreement, the commissions were to be paid at a
rate of 10% of the amount of inventories purchased in North America and 3% of
the sales made in North America. The commissions were recorded as part of the
cost of revenues and selling and marketing expenses, respectively. During 2008,
TAT incorporated a new subsidiary company, to represent its heat exchangers
division in North America, therefore the commission agreement with the
affiliated company was terminated.
|
|
(2)
|
TAT
is committed to pay marketing commissions to salesmen at a range of 1% to 12%
of total sales contracts which were received through promotion and distribution
carried out by them. Commission expenses were $888, $490 and $656 for the years
ended December 31, 2008, 2007 and 2006, respectively. The commissions were
recorded as part of the selling and marketing expenses.
|
|
(1)
|
TAT
is committed to pay royalties to third parties through 2011 of between 5% to 12% of sales of
products developed by the third parties or developed through the intellectual
property and goodwill which were purchased from such third parties. Royalty
expenses were $261, $395 and $550 for the years ended December 31, 2008, 2007
and 2006, respectively. The royalties were recorded as part of the cost of
revenues.
|
|
(2)
|
Bental
is committed to pay royalties to the Israeli government on proceeds from the
sales of products, in the research and development of which the Israeli
government participated by way of grants. Under the terms of TATs funding
from the Office of the Chief Scientist, royalty payments are computed on the
portion of sales from such products at a rate of 2% and 3.5%. The commitment to
the Chief Scientist is limited to the amount of the received participation
(dollar linked), with the addition of an annual interest rate based on Libor.
As of December 31, 2008, the total amount of royalty bearing grants due by
TAT to the Chief Scientist was approximately $134.
|
F - 32
TAT
TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S.
dollars in thousands (except share and per share data)
|
NOTE 9
COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
|
Limco
leases many of its operating and office facilities for various terms under long-term,
non-cancelable operating lease agreements. The leases expire at various dates through
January 2013. The monthly rental expense ranges from approximately $0.1 to $9. Certain
leases contain renewal options as defined in the agreements. Lease expense (excluding
related parties) totaled $214 $330, and $217 for the years then ended December 31, 2008,
2007, and 2006 respectively.
|
|
TAT
leases its factory from a parent company, see Note 7a, until 2025.
|
|
Bental
leases an area of its plant from its related party for $55 per annum, under a long-term
lease until 2013.
|
|
As
of December 31, 2008, future minimum rental payments under non-cancelable operating
leases are as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
$
|
577
|
|
2010
|
|
|
|
585
|
|
2011
|
|
|
|
562
|
|
2012
|
|
|
|
481
|
|
2013
|
|
|
|
433
|
|
Thereafter
|
|
|
|
4,882
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
7,520
|
|
|
|
|
|
During
2004, two former employees filed a claim against TAT and against an employment agency,
alleging breach of contract and seeking compensation for salary delays and salary
differences in the amount of $279. On June 11, 2008, the labor court ruled in this claim,
and accordingly TAT and the employment agency are required, jointly and severally, to
compensate the former employees in a total amount of $170. On September 2, 2008 TAT and
the employment agency served an appeal for an amount of $135, and currently all parties
referred to mediation by the court. Based upon its legal advisors advice, TAT cannot
estimate the appeal chances at this stage, however in the event TAT will hold the
employment agency responsible for any loss that may arise from such a claim.
|
|
TAT
provides bank guarantees to third parties, in the ordinary course of business, mainly in
order to secure certain advances from customers. The maximum credit risk for these
guarantees totaled approximately $699 as of December 31, 2008
|
F - 33
TAT
TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S.
dollars in thousands (except share and per share data)
|
NOTE 9
COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
|
f.
|
Covenants
and liens on assets
|
|
(1)
|
In
connection with bank loans, including performance guarantees issued by banks
and bank guarantees in order to secure certain advances from customers, TAT and
its subsidiary Bental are obligated to meet certain financial covenants.
Such covenants include requirements for shareholders equity, current
ratio, operating profit margin, tangible net worth, and not to conduct certain
actions without informing the banks, such as allocating shares to third parties
involved with change in control. As of December 31, 2008, TAT and Bental were
in full compliance with all covenants.
|
|
(2)
|
In
order to secure bank loans, TAT granted a lien on its inventories and trade
accounts receivable, specific lien on its short-term bank deposit of $1,009,
which is recorded in other accounts receivable in the balance sheet, as well as
specific lien on Bentals shares held by TAT.
|
|
(3)
|
In
order to secure bank loans, Bental granted floating liens on all of its
property and assets, fixed lien on its unpaid share capital, goodwill and first
priority liens on its fixed assets, checks and other trading instruments.
|
|
(4)
|
A
lien on Bental Approved Enterprise has been registered in favor of the State of
Israel (see Note 12 c below).
|
|
g.
|
Limco
is currently engaged in a contract dispute with one of its suppliers. TAT
believes that the dispute will be resolved on a commercial basis. However,
the inability to amicably resolve such dispute could have a material adverse
effect on TATs business and financial condition.
|
NOTE 10
SHAREHOLDERS EQUITY
|
a.
|
TATs
ordinary shares confer upon their holders voting rights, the right to receive
dividends, if declared, and any amounts payable upon the dissolution,
liquidation or winding up of the affairs of TAT.
|
|
b.
|
On
August 10, 2004, TAT entered into an investment agreement, according to which
the investor purchased 857,143 Ordinary shares of NIS 0.9 par value of TAT, and
was granted a warrant to purchase 500,000 Ordinary shares of NIS 0.90 par value
at an exercise price of $8.50 per share, exercisable for 66 months from the
date of grant. The total cash received was $6,000.
|
|
In
addition, the investor and TAT entered into a credit line agreement, under which the
investor made a line of credit available to TAT in the amount of up to $2,000. The amount
of the credit withdrawn from the investor shall not be less than $1,000. The withdrawn
credit bears interest at an annual rate of 5%, in addition to an annual handling fee of
0.5% of the credit line amount. The withdrawn credit will be settled in four equal
payments, no later than 66 months from the date of the agreement.
|
F - 34
TAT
TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S.
dollars in thousands (except share and per share data)
|
NOTE 10
SHAREHOLDERS EQUITY (Cont.)
|
TAT
recorded the fair value of the credit line, which amounted to $265, as deferred charges,
which were amortized throughout the term of the credit line agreement. As such, the total
proceeds received for the issuance of shares and warrants, consisting of cash and a
provision of a credit line, amounted to $6,265 from which issuance expenses in the amount
of $273 were deducted. In addition, a consulting agreement was entered into with the
investors, see Note 7e.
|
|
On
September 5, 2006, TAT notified the investor on the cancellation of the credit line,
which was not utilized by it since the date of grant. As a result, TAT recorded the
unamortized portion of the deferred charge, amounted to $149 to financial expenses.
|
|
On
February 21, 2007, the investor exercised its warrant to purchase 500,000 Ordinary shares
of NIS 0.9 par value each, according to the investment agreement, for an exercise price
of $6.94 per share, which reflected the base exercise price of $8.5 reduced by the effect
of dividends during the period the warrants were outstanding.
|
|
1.
|
In
January 1999, TAT adopted a stock option plan for its employees, directors and
officers, whereby options to purchase up to 500,000 Ordinary shares (out of
which 402,500 stock options were granted to executives) were to be granted, at
an exercise price of $1.625 per share (which equaled the market price on the
date of grant). All of the options have been granted under the above plan.
Under the terms of the plan, the options were fully vested as of the grant
date. As of December 31, 2008 7,500 were still outstanding. These options
expired in January 2009.
|
|
The
following table is a summary of the activity of TATs stock Option plan:
|
|
|
Year ended December 31,
|
|
|
2008
|
2007
|
2006
|
|
|
Number
of
options
|
Weighted
average
exercise
price
|
Number
of
options
|
Weighted
average
exercise
price
|
Number
of
options
|
Weighted
average
exercise
price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
beginning of the
|
|
|
|
year
|
|
|
|
17,500
|
|
$
|
1.625
|
|
|
17,500
|
|
$
|
1.625
|
|
|
17,500
|
|
$
|
1.625
|
|
|
Exercised
|
|
|
|
(10,000
|
)
|
|
1.625
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Forfeited
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Expired
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at the
|
|
|
|
end of the year
|
|
|
|
7,500
|
|
$
|
1.625
|
|
|
17,500
|
|
$
|
1.625
|
|
|
17,500
|
|
$
|
1.625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable options
|
|
|
|
7,500
|
|
$
|
1.625
|
|
|
17,500
|
|
$
|
1.625
|
|
|
17,500
|
|
$
|
1.625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2008, there are 7,500 options outstanding and exercisable, with a
weighted average remaining contractual life of 0.08 years. The aggregate intrinsic value
of the stock options outstanding at December 31, 2008 was $22.
|
F - 35
TAT
TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S.
dollars in thousands (except share and per share data)
|
NOTE 10
SHAREHOLDERS EQUITY (Cont.)
|
c.
|
Stock
option plans (cont.):
|
|
2.
|
Limco
Inc. entered into a share based compensation agreement with its Chief Executive
Officer (CEO) during August, 2005. The compensation agreement is
made up of 45,000 Phantom Stock options and stock options to be issued upon the
completion of an IPO by Limco Inc. The Phantom Stock options had a base
exercise price of $6.37. At the date of exercise, the CEO received a cash
payment for the difference between the exercise price and the average price of
TATs stock price for the 60 days preceding the exercise date. During the
years ended December 31, 2007 and 2006, Limco Inc. recorded expenses of $325
and $348, respectively. At December 31, 2007, all of the Phantom Stock options
had been exercised.
|
|
3.
|
Effective
as of July 19, 2007, Limco Inc. established an Incentive Compensation Plan, or
the 2007 Plan, under which Limco Inc. may issue options to purchase 600,000
shares of common stock. The options vest in three equal annual installments,
except for 66,000 options that vest in four equal semi-annual installments.
Options generally expire five to ten years from date of grant.
|
|
Compensation
expense attributable to outstanding stock options was $175 and $390 for the years ended
December 31, 2008 and 2007, respectively. Compensation expense is recognized in the
statement of income as an operating expense based on the fair value of the option over
the requisite service period. As of December 31, 2008, the total unrecognized
compensation cost related to non-vested stock awards was $781 and the weighted average
period over which the cost is expected to be recognized is approximately 1.6 years.
|
|
A
summary of the 2007 plan activity for the years ended December 31, 2008 and 2007, is
presented below:
|
|
|
Number
of options
|
Weighted
average
exercise
price
|
Weighted
average
contractual
life
remaining
|
Aggregate
intrinsic
value (1)
|
|
|
(in thousands)
|
|
in years
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
404
|
|
$
|
11.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31,
|
|
|
|
2007
|
|
|
|
404
|
|
$
|
11.00
|
|
|
4.5
|
|
$
|
570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
60
|
|
$
|
5.88
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
|
153
|
|
$
|
11.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31,
|
|
|
|
2008
|
|
|
|
311
|
|
$
|
10.01
|
|
|
4.37
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excisable at December 31, 2008
|
|
|
|
127
|
|
$
|
10.09
|
|
|
4.25
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options expected to vest at
|
|
|
|
December 31, 2008
|
|
|
|
184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F - 36
TAT
TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S.
dollars in thousands (except share and per share data)
|
NOTE 10
SHAREHOLDERS EQUITY (Cont.)
|
c.
|
Stock
option plans (cont.):
|
|
(1)
|
The
intrinsic value of a stock option is the amount by which the market value of
the underlying stock on December 31, 2008 exceeds the strike price of the
option. There was no aggregate intrinsic value at December 31, 2008
as Limco stock price of $3.03 on December 31, 2008 was below the exercise price
of all of the outstanding stock options. The aggregate intrinsic
value at December 31, 2007 was $570.
|
|
The
weighted average grant date fair value of the stock options granted during the years
ended December 31, 2008 and 2007 was $2.63 and $5.38, respectively. There were 60,000
options granted during the year ended December 31, 2008.
|
|
The
following table summarizes Limcos weighted average assumptions used in the
valuation of options for the years ended December 31, 2008 and 2007:
|
|
|
2008
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average expected stock price volatility
|
|
|
|
56
|
%
|
|
62
|
%
|
|
Weighted average expected option life (in years)
|
|
|
|
3.5
|
|
|
3.5
|
|
|
Average risk free interest rate
|
|
|
|
2.87
|
%
|
|
4.96
|
%
|
|
Dividend yield
|
|
|
|
0
|
%
|
|
0
|
%
|
|
Discount for post-vesting restriction
|
|
|
|
N/A
|
|
|
N/A
|
|
|
Limco
uses the Black-Scholes option pricing model to determine the weighted average fair value
of options. The volatility factor used in the Black-Scholes option pricing model is based
on historical stock price fluctuations. Due to the relative short period of the time
Limco has been public TAT has estimated a 0% forfeiture rate. The expected term of
options is based on the simplified method as allowed under Staff Accounting Bulletins
(SAB) Nos. 107 and 110 issued by the SEC. The simplified method assumes
the option will be exercised midway between the vesting date and the contractual term of
the option. Limco is able to use the simplified method as the options qualify
as plain vanilla options as defined by SAB No. 107 and since Limco does not
have sufficient historical exercise data to provide a reasonable basis to estimate
expected term. Expected dividend yield is based upon Limcos historical and
projected dividend activity and the risk free interest rate is based upon US Treasury
rates appropriate for the expected term of the options.
|
|
On
February 25, 2009, subsequent to the balance sheet, Limco granted certain directors and
senior management with options to purchase 230,000 shares of common stock, for an
exercise price of $2.16. The fair value of each option granted is $1.06, calculated at
the grant date.
|
F - 37
TAT
TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S.
dollars in thousands (except share and per share data)
|
NOTE 10
SHAREHOLDERS EQUITY (Cont.)
|
c.
|
Stock
option plans (cont.):
|
|
4.
|
On
August 14, 2008, TATs Board of Directors approved the grant of 65,477
unregistered options of Series A, B and C to its Chief Executive Officer. Each
options Series A, B and C vest over two, three and four years from May 19,
2008, respectively, and expires three years after vesting. Each Series A, B and
C option can be exercised for one ordinary share 0.9 NIS par value, for a
consideration of $6.15 (adjusted for dividend distribution and other equity
changes as defined in the option grant terms), alternatively, the Chief
Executive Officer can opt to receive TAT ordinary shares based on the value of
the appreciation over the exercise price.
|
|
The
fair value of the stock options granted at the grant date, is $2.69, $2.9 and $3.15, for
Series A, B a C, respectively, based on the Black-Scholes option-pricing model with the
following weighted average assumptions:
|
|
|
Series A
|
Series B
|
Series C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of options
|
|
|
|
21,826
|
|
|
21,826
|
|
|
21,825
|
|
|
Weighted average expected stock price volatility
|
|
|
|
60.05
|
%
|
|
55.96
|
%
|
|
54.57
|
%
|
|
Weighted average expected option life (in years)
|
|
|
|
3.25
|
|
|
4.25
|
|
|
5.25
|
|
|
Average risk free interest rate
|
|
|
|
2.72
|
%
|
|
2.94
|
%
|
|
3.15
|
%
|
|
Compensation
expense attributable to outstanding stock options was $47 for the year ended December 31,
2008. Compensation expense is recognized in the statement of income as an operating
expense based on the fair value of the option over the requisite service period. As of
December 31, 2008, the total unrecognized compensation cost related to non-vested stock
awards was $144 and the weighted average period over which the cost is expected to be
recognized is approximately 4 years.
|
|
On
April 4, 2006, TATs Board declared a dividend in the amount of $1,208, or $ 0.20
per share, for all of the shareholders of TAT at the effective date May 16, 2006.
The dividend was fully paid on May 30, 2006.
|
|
On
September 2, 2007, TATs Board declared a dividend in the amount of $2,617, or $0.4
per share, for all of the shareholders of TAT at the effective date October 16,
2007. The dividend was fully paid on November 6, 2007.
|
|
On
March 11, 2009, subsequent to the balance sheet date, TATs Board declared a cash
dividend in the total amount of $3,500, or $0.55 per share, for all of the shareholders
of Company at the effective date March 26, 2009. TAT paid the dividend on April 8,
2009.
|
|
On
March 11, 2009, subsequent to the balance sheet date, Bentals Board of Directors
approved the distribution of cash dividend in the total amount of $3,150. The dividend
was paid on April 6, 2009, out of which TAT received $2,205.
|
F - 38
TAT
TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S.
dollars in thousands (except share and per share data)
|
NOTE 11 NET
INCOME PER SHARE
|
The
following table sets forth the computation of basic and diluted net income per share:
|
|
|
Year ended December 31,
|
|
|
2008
|
2007
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
$
|
4,268
|
|
$
|
31,979
|
|
$
|
6,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
Weighted average number of basic shares outstanding
|
|
|
|
during the year
|
|
|
|
6,546,055
|
|
|
6,344,041
|
|
|
6,042,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
Stock options and warrants
|
|
|
|
20,194
|
|
|
63,463
|
|
|
120,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted net income per share
|
|
|
|
6,566,249
|
|
|
6,407,504
|
|
|
6,163,025
|
|
|
|
|
|
|
|
|
|
|
The
weighted average number of outstanding options excluded from the calculation of diluted
net earnings per share, due to their antidilutive effect was 9,298 for the year ended
December 31, 2008 and none for the years ended December 31, 2007 and 2006.
|
NOTE 12 INCOME
TAXES
|
a.
|
Measurement
of taxable income under the Income Tax (Inflationary Adjustments) Law, 1985:
|
|
In
accordance with the above law results for tax purposes are measured and reflected in real
terms in accordance with the changes in the Israeli Consumer Price Index (CPI). Under the
Inflationary adjustments law (Amendment No. 20, 2008, hereafter the amendment),
that was enacted in the Israeli Parliament on February 26, 2008, the provisions of the
Inflationary adjustments law will no longer apply to TAT in 2008 and thereafter. The
amendment specifies transitional provisions regarding the discontinuance of the
provisions of the Inflationary adjustments law that have applied to TAT through the end
of 2007.
|
|
b.
|
Tax
benefits under Israels Law for the Encouragement of Industry (Taxation),
1969:
|
|
TAT
is an industrial company, as defined by the law for the Encouragement of
Industry (Taxes), 1969, and as such, is entitled to certain tax benefits, which mainly
consist of amortization of costs relating to know-how and patents over eight years, the
right to claim public issuance expenses, and accelerated depreciation.
|
F - 39
TAT
TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S.
dollars in thousands (except share and per share data)
|
NOTE 12 INCOME
TAXES (Cont.)
|
c.
|
Tax
benefits under the Law for the Encouragement of Capital Investments, 1959 (the
Law):
|
|
Certain
expansion plans of TAT and its Israeli subsidiary Bental, have been granted an
Approved Enterprise status, under the Law. For some expansion programs,
Bental have elected the grants track, and for one expansion program, TAT has elected to
receive its benefits through the alternative benefits track, waiving grants
in return for tax exemptions. Pursuant thereto, the increase in income from the date of
commencement of each program which is the income of TAT derived from the Approved
Enterprise expansion program is tax-exempt for the first two years and eligible for
reduced tax rates of 25% for a period of five years thereafter (such reduced tax rates
are dependent on the level of foreign investments in TAT), limited to twelve years from
commencement of production or fourteen years from the date of approval, whichever is
earlier. As of December 31, 2008, the tax benefits for these existing expansion programs
will expire within the period of 2009 to 2021.
|
|
The
entitlement to the above benefits is conditional upon TAT fulfilling the conditions
stipulated by the abovementioned law, regulations published thereunder and the letters of
approval for the specific investments in approved enterprises. In the event
of failure to comply with these conditions, the benefits may be canceled and TAT may be
required to refund the amount of the benefits, in whole or in part, including interest
(as for liens, see Note 9f). As of December 31, 2008, management believes that TAT
is meeting all of the aforementioned conditions.
|
|
The
tax-exempt income attributable to the Approved Enterprise can not be
distributed to shareholders without imposing tax liability on TAT other than in complete
liquidation. As of December 31, 2008, there is approximately $9,439 tax-exempt income
earned by TATs Approved Enterprises. If the retained tax-exempt income
is distributed to shareholders, it would be taxed at the corporate tax rate applicable to
such profits as if TAT had not elected the alternative tax benefits track (currently
25%).
|
|
Income
of TAT from sources other than the Approved Enterprises during the benefit
period will be subject to tax at the effective standard corporate tax rate in Israel, see
Note 12d below.
|
F - 40
TAT
TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S.
dollars in thousands (except share and per share data)
|
NOTE 12 INCOME
TAXES (Cont.)
|
c.
|
Tax
benefits under the Law for the Encouragement of Capital Investments, 1959 (the
Law) (cont.):
|
|
On
April 1, 2005, an amendment to the Law came into effect (the Amendment) and
has significantly changed the provisions of the Law. The Amendment limits the scope of
enterprises which may be approved by the Investment Center by setting criteria for the
approval of a facility as an Approved Enterprise, such as provisions generally requiring
that at least 25% of the Approved Enterprises income will be derived from export.
Additionally, the Amendment enacted major changes in the manner in which tax benefits are
awarded under the Law so that companies no longer require Investment Center approval in
order to qualify for tax benefits.
|
|
However,
the Law provides that terms and benefits included in any certificate of approval already
granted will remain subject to the provisions of the Law as they were on the date of such
approval. Therefore, TATs existing Approved Enterprise expansion programs will
generally not be subject to the provisions of the Amendment. As a result of the
amendment, tax-exempt income generated under the provisions of the Amendment, will
subject TAT to taxes upon distribution or liquidation and TAT may be required to record
deferred tax liability with respect to such tax-exempt income. As of December 31, 2008,
management believes that TAT is meeting all of the aforementioned conditions under the
Amendment.
|
|
d.
|
Reduction
of Israeli corporate tax rate:
|
|
On
July 25, 2005, the Knesset (Israeli parliament) passed an amendment to the
Income Tax Ordinance (No. 147), that provides, among other things, the corporate tax rate
to be gradually reduced to the following tax rates: 2004 35%, 2005 34%,
2006 31%, 2007 29%, 2008 27%, 2009 26% and 2010 and
thereafter 25%.
|
|
U.S.
subsidiaries are taxed based on federal and state tax laws. The effective tax
rate for 2008, 2007, and 2006 was 41.48%, 35.6% and 36.8%, respectively.
|
|
TATs
income tax assessments are considered final through 2001.
Bental income tax assessments
are considered final through 2006.
Limco income tax assessments are considered final
through 2007.
TAT-GAL Inc. which was incorporated in 2008, has not received final tax
assessment yet.
|
F - 41
TAT
TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S.
dollars in thousands (except share and per share data)
|
NOTE 12 INCOME
TAXES (Cont.)
|
g.
|
Income
tax reconciliation:
|
|
A
reconciliation of the theoretical tax expense assuming all income is taxed at the
statutory rate to income taxes as reported in the statements of income:
|
|
|
Year ended December 31,
|
|
|
2008
|
2007
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes as reported in the
|
|
|
|
|
|
|
|
|
|
|
|
|
statements of income
|
|
|
$
|
6,888
|
|
$
|
35,962
|
|
$
|
9,313
|
|
|
|
|
|
|
Statutory tax rate in Israel
|
|
|
|
27
|
%
|
|
29
|
%
|
|
31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theoretical tax expenses
|
|
|
|
1,860
|
|
|
10,429
|
|
|
2,887
|
|
|
Increase (decrease) in income taxes resulting
|
|
|
|
from:
|
|
|
|
Tax adjustment for foreign subsidiaries
|
|
|
|
subject to a different tax rate
|
|
|
|
671
|
|
|
532
|
|
|
399
|
|
|
Reduced tax rate on income derive from
|
|
|
|
"Approved Enterprises" plans
|
|
|
|
(268
|
)
|
|
-
|
|
|
-
|
|
|
Reduced tax rate on capital gain from sale of
|
|
|
|
shares of subsidiary company
|
|
|
|
-
|
|
|
(6,400
|
)
|
|
-
|
|
|
Difference in basis of measurement for
|
|
|
|
financial reporting and income tax purposes
|
|
|
|
(636
|
)
|
|
(870
|
)
|
|
(149
|
)
|
|
Tax in respect of prior years
|
|
|
|
77
|
|
|
(535
|
)
|
|
(28
|
)
|
|
Non-deductible expenses
|
|
|
|
91
|
|
|
56
|
|
|
138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes as reported in the statements of
|
|
|
|
income
|
|
|
$
|
1,795
|
|
$
|
3,212
|
|
$
|
3,247
|
|
|
|
|
|
|
|
|
|
|
h.
|
Income
before income taxes is comprised as follows:
|
|
|
Year ended December 31,
|
|
|
2008
|
2007
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic (Israel)
|
|
|
$
|
2,263
|
|
$
|
27,897
|
|
$
|
2,460
|
|
|
Foreign (United States)
|
|
|
|
4,625
|
|
|
8,065
|
|
|
6,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,888
|
|
$
|
35,962
|
|
$
|
9,313
|
|
|
|
|
|
|
|
|
|
F - 42
TAT
TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S.
dollars in thousands (except share and per share data)
|
NOTE 12 INCOME
TAXES (Cont.)
|
i.
|
Income
taxes included in the statements of income:
|
|
|
Year ended December 31,
|
|
|
2008
|
2007
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic (Israel)
|
|
|
$
|
73
|
|
$
|
671
|
|
$
|
652
|
|
|
Foreign (United States)
|
|
|
|
1,845
|
|
|
2,862
|
|
|
2,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,918
|
|
|
3,533
|
|
|
3,159
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
Domestic (Israel)
|
|
|
|
(201
|
)
|
|
(330
|
)
|
|
72
|
|
|
Foreign (United States)
|
|
|
|
78
|
|
|
9
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(123
|
)
|
|
(321
|
)
|
|
88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,795
|
|
$
|
3,212
|
|
$
|
3,247
|
|
|
|
|
|
|
|
|
|
|
j.
|
Deferred
income taxes:
|
|
Deferred
income taxes reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes. Significant components of TATs deferred tax liabilities
and assets are as follows:
|
|
|
December 31,
|
|
|
2008
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets (liabilities):
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
|
$
|
72
|
|
$
|
54
|
|
|
Unrealized gains
|
|
|
|
375
|
|
|
135
|
|
|
Provisions for employee benefits and other temporary
|
|
|
|
differences
|
|
|
|
789
|
|
|
606
|
|
|
Tax loss carryforwards
|
|
|
|
238
|
|
|
295
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets - short-term
|
|
|
$
|
1,474
|
|
$
|
1,090
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities mainly derived from property
|
|
|
|
and equipment - long-term
|
|
|
$
|
(1,086
|
)
|
$
|
(581
|
)
|
|
|
|
|
|
|
|
As
of December 31, 2008, TAT did not provide a valuation allowance in respect of deferred
tax assets, since management currently believes that it is more likely than not that the
deferred tax asset will be realized in the future.
|
|
TAT
does not intend to distribute earnings of a foreign subsidiary aggregating $17,463 as of
December 31, 2008, and accordingly, no deferred tax liability has been established
relative to these earnings. If these amounts were not considered permanently reinvested,
a deferred tax liability would have been required.
|
F - 43
TAT
TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S.
dollars in thousands (except share and per share data)
|
NOTE 12 INCOME
TAXES (Cont.)
|
k.
|
Effective
January 1, 2007, TAT adopted the provisions of FASB Interpretation No. 48 (FIN
48), Accounting for Uncertainty in Income Taxes, an interpretation
of SFAS 109, Accounting for Income Taxes. FIN 48 clarifies the
accounting for uncertain tax positions. FIN 48 prescribes a comprehensive model
for how companies should recognize, measure, present and disclose in their
financial statements uncertain tax positions taken or expected to be taken on a
tax return. Under FIN 48, tax positions shall initially be recognized in the
financial statements when it is more likely than not the position will be
sustained upon examination by the tax authorities. Such tax positions shall
initially and subsequently be measured as the largest amount of tax benefit
that is greater than 50% likely of being realized upon ultimate settlement with
the tax authority, assuming full knowledge of the position and all relevant
facts. FIN 48 also revises disclosure requirements to include an annual tabular
rollforward of unrecognized tax benefits. TAT was required to apply the
provisions of FIN 48 to all tax positions upon initial adoption with any
cumulative effect adjustment to be recognized as an adjustment to retained
earnings.
|
|
As
a result of adoption of FIN 48, TAT reclassified $147 from income tax payables to
unrecognized benefits with no impact to previously recorded retained earnings.
|
|
During
2008, Limco was audited by the Internal Revenue Service for the tax year ended December
31, 2006. It was the determination of the Internal Revenue Service that Limco had
deemed dividend distributions to TAT related to interest expense charged during 2005,
2006 and 2007. Interest and penalties totaling $43 have been charged to income
tax expense during the year ended December 31, 2008. The audit is now closed
and Limco believes that the only tax years open for audit is the year ended December
31, 2008.
|
|
A
reconciliation of the beginning and ending amount of recognized provision, as a result of
the implementation of FIN 48, is as follows:
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2007
|
|
|
$
|
147
|
|
|
Additions for tax positions of prior years
|
|
|
|
101
|
|
|
Benefits from tax positions of prior years
|
|
|
|
(535
|
)
|
|
Settlements with tax authorities
|
|
|
|
535
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
|
248
|
|
|
Additions for tax positions of prior years
|
|
|
|
189
|
|
|
Settlements with tax authorities
|
|
|
|
(437
|
)
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
$
|
-
|
|
|
|
|
|
F - 44
TAT
TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S.
dollars in thousands (except share and per share data)
|
NOTE 13 SEGMENT INFORMATION
|
a.
|
Segment
Activities Disclosure:
|
|
Commencing
August 18, 2008, as a result of the purchase of Bental, see Note 1 f, TAT manages its
segments on a basis of four reportable segments, as follows:
|
|
|
OEM
Heat Transfer segment focuses on manufacture of heat transfer equipment, such as
heat exchangers, precoolers and oil/fuel hydraulic coolers used in aircraft, defense
systems, electronic equipment and other applications. In addition TAT manufactures
aircraft accessories and systems such as pumps, valves, power systems, turbines, etc, and
|
|
|
OEM
Electric Motion Systems segment focuses on manufacture of broad range of electric
motion systems, including motors, generators and other electro-mechanical motion systems.
|
|
|
MRO
(maintenance, repair and overhaul) segment focuses on remanufacture, overhaul and repair
of heat transfer equipment and other aircraft components and of repair of APUs,
propellers and landing gears.
|
|
|
Parts
Segment focuses on sales of parts of APUs, propellers and landing gears.
|
|
TAT
evaluates segment performance based on revenue and operating income. The
operating income reported in TATs segments excludes corporate and other unallocated
amounts. Although such amounts are excluded from the business segment results,
they are included in reported consolidated earnings. Corporate and unallocated
amounts include executive level expenses and certain expenses related to accounting and
finance, human resources and information technology departments.
|
|
b.
|
Segments
statement operations disclosure:
|
|
The
following financial information is the information that management uses for analyzing the
segment results. The figures are presented in consolidated method as presented to
management.
Cost related to selling and marketing and general and administrative for MRO
and Parts are allocated based on revenues. This was a change made in 2008. The segment
results for 2007 and 2006 related to MRO and Parts have been restated to conform with
this allocation method.
|
F - 45
TAT
TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S.
dollars in thousands (except share and per share data)
|
NOTE 13 SEGMENT INFORMATION (Cont.)
|
The
following financial information is a summary of the operating income of each operational
segment:
|
|
|
Year ended December 31, 2008
|
|
|
OEM- Heat
Transfer
Products
|
OEM -
Electric
Motion
Systems
|
MRO
|
Parts
|
Corporate
|
Eliminations
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
$
|
27,857
|
|
$
|
9,758
|
|
$
|
54,276
|
|
$
|
17,289
|
|
|
-
|
|
$
|
(5,891
|
)
|
$
|
103,289
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
21,058
|
|
|
7,845
|
|
|
43,664
|
|
|
13,922
|
|
|
-
|
|
|
(5,926
|
)
|
|
80,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
6,799
|
|
|
1,913
|
|
|
10,612
|
|
|
3,367
|
|
|
-
|
|
|
35
|
|
|
22,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and
|
|
|
|
marketing expenses
|
|
|
|
1,364
|
|
|
250
|
|
|
2,094
|
|
|
661
|
|
|
-
|
|
|
-
|
|
|
4,369
|
|
|
General and
|
|
|
|
administrative
|
|
|
|
expenses
|
|
|
|
4,342
|
|
|
713
|
|
|
3,466
|
|
|
1,024
|
|
|
2,862
|
|
|
-
|
|
|
12,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
$
|
1,093
|
|
$
|
950
|
|
$
|
5,052
|
|
$
|
1,682
|
|
$
|
(2,862
|
)
|
$
|
35
|
|
$
|
5,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2007
|
|
|
OEM
|
MRO
|
Parts
|
Corporate
|
Eliminations
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
$
|
23,489
|
|
$
|
49,392
|
|
$
|
20,384
|
|
|
-
|
|
$
|
(4,561
|
)
|
$
|
88,704
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
17,891
|
|
|
35,205
|
|
|
16,603
|
|
|
-
|
|
|
(4,492
|
)
|
|
65,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
5,598
|
|
|
14,187
|
|
|
3,781
|
|
|
-
|
|
|
(69
|
)
|
|
23,497
|
|
|
|
|
|
|
Selling and
|
|
|
|
marketing expenses
|
|
|
|
1,106
|
|
|
2,088
|
|
|
525
|
|
|
-
|
|
|
-
|
|
|
3,719
|
|
|
General and
|
|
|
|
administrative
|
|
|
|
expenses
|
|
|
|
3,540
|
|
|
1,988
|
|
|
455
|
|
|
5,012
|
|
|
-
|
|
|
10,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
$
|
952
|
|
$
|
10,111
|
|
$
|
2,801
|
|
$
|
(5,012
|
)
|
$
|
(69
|
)
|
$
|
8,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F - 46
TAT
TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S.
dollars in thousands (except share and per share data)
|
NOTE 13 SEGMENT
INFORMATION (Cont.)
|
|
Year ended December 31, 2006
|
|
|
OEM
|
MRO
|
Parts
|
Corporate
|
Eliminations
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
$
|
22,110
|
|
$
|
43,824
|
|
$
|
15,197
|
|
|
-
|
|
$
|
(3,598
|
)
|
$
|
77,533
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
16,271
|
|
|
32,214
|
|
|
12,835
|
|
|
-
|
|
|
(3,681
|
)
|
|
57,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
5,839
|
|
|
11,610
|
|
|
2,362
|
|
|
-
|
|
|
83
|
|
|
19,894
|
|
|
|
|
|
|
Selling and
|
|
|
|
marketing expenses
|
|
|
|
1,190
|
|
|
1,662
|
|
|
614
|
|
|
-
|
|
|
-
|
|
|
3,466
|
|
|
General and
|
|
|
|
administrative
|
|
|
|
expenses
|
|
|
|
2,336
|
|
|
1,199
|
|
|
404
|
|
|
2,771
|
|
|
-
|
|
|
6,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
$
|
2,313
|
|
$
|
8,749
|
|
$
|
1,344
|
|
$
|
(2,771
|
)
|
$
|
83
|
|
$
|
9,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
c.
|
The
following financial information identifies the assets to segment:
|
|
|
As of December 31, 2008
|
|
|
OEM -
Heat
Transfer
Products
|
OEM -
Electric
Motion
Systems
|
MRO
|
Parts
|
Corporate
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
$
|
39,822
|
|
$
|
19,170
|
|
$
|
39,480
|
|
$
|
7,118
|
|
$
|
30,340
|
|
$
|
135,930
|
|
|
Depreciation and
|
|
|
|
amortization
|
|
|
|
1,020
|
|
|
1,164
|
|
|
1,169
|
|
|
-
|
|
|
-
|
|
|
3,353
|
|
|
Capital investments
|
|
|
|
1,096
|
|
|
767
|
|
|
1,697
|
|
|
-
|
|
|
-
|
|
|
3,558
|
|
|
Goodwill
|
|
|
|
-
|
|
|
1,185
|
|
|
4,814
|
|
|
-
|
|
|
-
|
|
|
5,999
|
|
|
|
As of December 31, 2007
|
|
|
OEM
|
MRO
|
Parts
|
Corporate
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
$
|
40,704
|
|
$
|
33,299
|
|
$
|
3,522
|
|
$
|
35,882
|
|
$
|
113,407
|
|
|
Depreciation and amortization
|
|
|
|
906
|
|
|
1,123
|
|
|
2
|
|
|
-
|
|
|
2,031
|
|
|
Capital investments
|
|
|
|
3,404
|
|
|
2,884
|
|
|
15
|
|
|
-
|
|
|
6,303
|
|
|
Goodwill
|
|
|
|
-
|
|
|
4,780
|
|
|
-
|
|
|
-
|
|
|
4,780
|
|
|
d.
|
The
following presents total revenues, based on the location of the end customers,
for the years ended December 31, 2008, 2007 and 2006 and long-lived assets as
of those dates.
|
|
|
2008
|
2007
|
2006
|
|
|
Total
revenues
|
Long-lived
assets
|
Total
revenues
|
Long-lived
assets
|
Total
revenues
|
Long-lived
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Israel
|
|
|
$
|
17,077
|
|
$
|
9,164
|
|
$
|
7,383
|
|
$
|
6,758
|
|
$
|
7,042
|
|
$
|
4,315
|
|
|
Asia
|
|
|
|
4,497
|
|
|
-
|
|
|
2,555
|
|
|
-
|
|
|
1,953
|
|
|
-
|
|
|
North America
|
|
|
|
57,472
|
|
|
6,023
|
|
|
56,554
|
|
|
5,169
|
|
|
51,292
|
|
|
2,920
|
|
|
Europe
|
|
|
|
19,510
|
|
|
-
|
|
|
18,484
|
|
|
-
|
|
|
15,210
|
|
|
-
|
|
|
Other
|
|
|
|
4,733
|
|
|
-
|
|
|
3,728
|
|
|
-
|
|
|
2,036
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
103,289
|
|
$
|
15,187
|
|
$
|
88,704
|
|
$
|
11,927
|
|
$
|
77,533
|
|
$
|
7,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F - 47
TAT
TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S.
dollars in thousands (except share and per share data)
|
NOTE 14 SELECTED
STATEMENTS OF INCOME DATA
|
|
|
Year ended December 31,
|
|
|
|
2008
|
2007
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Financial income (expenses), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial income:
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
$
|
1,257
|
|
$
|
305
|
|
$
|
372
|
|
|
|
Interest on cash equivalents, short-term
|
|
|
|
|
bank deposits and others
|
|
|
|
1,420
|
|
|
1,402
|
|
|
349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,677
|
|
|
1,707
|
|
|
721
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial expenses:
|
|
|
|
|
Bank charges
|
|
|
|
(264
|
)
|
|
(142
|
)
|
|
(123
|
)
|
|
|
Interest on long-term loans
|
|
|
|
(143
|
)
|
|
(640
|
)
|
|
(683
|
)
|
|
|
Foreign currency translation adjustments
|
|
|
|
(943
|
)
|
|
(220
|
)
|
|
(161
|
)
|
|
|
Interest expenses on call option to minority
|
|
|
|
(28
|
)
|
|
-
|
|
|
-
|
|
|
|
Others
|
|
|
|
(125
|
)
|
|
(4
|
)
|
|
(218
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,503
|
)
|
|
(1,006
|
)
|
|
(1,185
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,174
|
|
$
|
701
|
|
$
|
(464
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2008
|
2007
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
b.
|
Other income (expenses), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain from sale of shares and decrease in
|
|
|
|
|
holding of subsidiary company (1)
|
|
|
$
|
-
|
|
$
|
26,375
|
|
$
|
-
|
|
|
|
(Loss) Gain on sale of marketable securities
|
|
|
|
|
classified as available-for-sale
|
|
|
|
(236
|
)
|
|
34
|
|
|
38
|
|
|
|
Other income
|
|
|
|
-
|
|
|
69
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(236
|
)
|
$
|
26,478
|
|
$
|
59
|
|
|
|
|
|
|
|
|
|
|
F - 48
TAT
TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S.
dollars in thousands (except share and per share data)
|
NOTE 15
SUPPLEMENTAL CONSOLIDATED BALANCE SHEET INFORMATION
|
|
Warranty
provision
|
Inventory
Reserve
|
Account Receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves and Allowances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2006
|
|
|
$
|
498
|
|
$
|
2,480
|
|
$
|
396
|
|
|
Additions
|
|
|
|
278
|
|
|
-
|
|
|
43
|
|
|
Write-offs, net of recoveries
|
|
|
|
-
|
|
|
(836
|
)
|
|
(159
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, as of December 31, 2006
|
|
|
|
776
|
|
|
1,644
|
|
|
280
|
|
|
Additions
|
|
|
|
8
|
|
|
124
|
|
|
10
|
|
|
Write-offs, net of recoveries
|
|
|
|
-
|
|
|
-
|
|
|
(135
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, as of December 31, 2007
|
|
|
|
784
|
|
|
1,768
|
|
|
155
|
|
|
Additions
|
|
|
|
215
|
|
|
268
|
|
|
180
|
|
|
Write-offs, net of recoveries
|
|
|
|
(300
|
)
|
|
-
|
|
|
(181
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, as of December 31, 2008
|
|
|
$
|
699
|
|
$
|
2,036
|
|
$
|
154
|
|
|
|
|
|
|
|
|
|
NOTE 16
SUBSEQUENT EVENTS
|
a.
|
Subsequent
to December 31, 2008, Limco announced that it would relocate the
operations of its Oklahoma subsidiary to the location of its Piedmont
subsidiary in North Carolina. Limco anticipates closing the Oklahoma
operations in the third quarter of 2009. The goal of this
relocation is to achieve significant annual cost savings. Limco entered
into a lease for a new facility in Kernersville, North Carolina of
approximately 56,000 square feet, which will house its operations being
relocated from Oklahoma. The lease, which expires on November 1, 2011,
provides for 2 renewal options, each for a five year term. The lease
provides for an annual rental fee of $86.
|
|
b.
|
On
April 3, 2009, TAT and Limco, its subsidiary company, announced that they
have entered into a definitive agreement and plan of merger pursuant to
which TAT (which presently owns 61.8% of Limcos common stock) will
acquire all of the publicly held shares of common stock of Limco, pursuant
to a stock for stock merger. Under the terms of the merger agreement, Limcos
shareholders will receive one half of an ordinary share of TAT for each
share of Limco common stock they own. The exchange ratio in the
transaction represents a premium of 12% to Limcos closing share
price on April 2, 2009 (the day before the announcement of the merger). It
also represents a premium of 24.3% to Limcos weighted average volume
stock price on the NASDAQ global market over the 20 trading days prior to
the announcement of the merger.
|
|
Following
the merger, the former Limco shareholders (excluding TAT) will own approximately 27.8% of
the ordinary shares of TAT.
|
F - 49
TAT
TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S.
dollars in thousands (except share and per share data)
|
NOTE 16 SUBSEQUENT EVENTS (Cont.)
|
It
is also anticipated that following the merger TAT Industries, the controlling shareholder
of TAT, which holds approximately 59% of the ordinary shares of TAT, as of the
announcement day, will own approximately 42% of the ordinary shares of TAT and Isal
Investment Ltd., the beneficial owner of 71% of the ordinary shares of TAT (through
direct holding and through its control in TAT Industries) will be the beneficial owner of
approximately 51% of the ordinary shares of TAT.
|
|
The
transaction is subject to approval of Limcos shareholders, representing at least a
majority of the outatanding shares of Limco common stock and other customary closing
conditions. TAT, which holds 61.8% of Limcos outstanding common stock, has advised
Limcos board that it intends to vote for approval and adoption of the merger.
Approval of the merger by TATs shareholders is not required. It is anticipated that
the closing of the merger will occur in the second or third quarter of 2009.
|
|
Upon
consummation of the merger, Limco will operate as a wholly-owned subsidiary of TAT,
maintaining its current management.
|
|
On
April 8, 2009, a petition was filed in the District Court of Tulsa County, State of
Oklahoma captioned Chris Gassen, individually and on behalf of all others similarly
situated (herein after The Plaintiff) against Limco and its Directors (Shmuel
Fledel, Jacob Gesthalter, Michael Gorin, Giora Inbar, Avraham Ortal, and Eran Goren),
hereinafter The Defendants. The action, which purports to be on behalf of a
class comprised of the public stockholders of Limco, seeks relief against Limco and its
Directors for alleged breaches of fiduciary duty and other violations of state law in
connection with the merger. Plaintiff claims, among other things, that the defendants are
attempting to sell Limco by means of an unfair process and for an unfair price and that
defendants have failed to disclose all material information concerning the merger.
Plaintiff is seeking to enjoin the consummation of the merger, monetary damages, and an
award of costs, including attorneys fees. The Companys management is of the
opinion that the action is without merit and intends to vigorously defend the claims.
|
F - 50
SIGNATURES
The
registrant hereby certifies that it meets all of the requirements for filing on Form 20-F
and that it has duly caused and authorized the undersigned to sign this annual report on
its behalf.
|
|
TAT TECHNOLOGIES LTD.
By: /s/ Yaron Shalem
Yaron Shalem
Chief Financial Officer
|
Date: June 25, 2009
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